CRITICAL OIL PRICE DECISION SEEN FOR OPEC MEMBERS

Nov. 13, 1995
Organization of Petroleum Exporting Countries members are likely to pass their pain threshold for revenues in 1996. That's because an oil supply surplus will hold the potential to pull world prices to less than $10/bbl, warns London's Centre for Global Energy Studies (CGES). It reckons the zero stock change call on OPEC crude oil will average 24.6 million b/d next year, well below current production of 25.2 million b/d (17346 bytes) .

Organization of Petroleum Exporting Countries members are likely to pass their pain threshold for revenues in 1996.

That's because an oil supply surplus will hold the potential to pull world prices to less than $10/bbl, warns London's Centre for Global Energy Studies (CGES). It reckons the zero stock change call on OPEC crude oil will average 24.6 million b/d next year, well below current production of 25.2 million b/d (17346 bytes).

"OPEC ministers are likely to roll over quotas when they meet (next week) in Vienna," CGES said. "But even this will not be enough to prevent prices from falling heavily next year."

Non-OPEC production is expected to increase by 1.5 million b/d next year, leaving no room for production above quota by OPEC members unless oil demand grows faster than the 1.4 million b/d expected.

"All that OPEC members really need to do to effect almost all necessary cuts is to abide strictly by their existing quotas," CGES said.

"However, it is difficult to see how OPEC can persuade those who are exceeding their quotas to bring their output back in line."

Only drastically lower oil prices have forced OPEC members to rein production in the past, CGES recalled. And only when oil prices have fallen well below $15/bbl in the last 10 years has OPEC acted decisively to cut production.

CGES said the key question facing OPEC oil ministers at next week's meeting in Vienna is not whether to roll over quotas, but how long the rollover should last.

CGES warned, "The cost of failing to achieve an overall reduction in the organization's output could be very high indeed: a value of less than$10/bbl for the OPEC basket of crudes by the end of 1996.

"The longer OPEC delays an output reduction, the deeper the cut will have to be when it is finally made."

Meanwhile, estimates compiled by Middle East Economic Survey (MEES) show OPEC production rose in the third quarter, with total output 680,000 b/d above the agreed ceiling.

MEES cites Venezuela as being by far the largest quota violator among OPEC members. Elsewhere, production increases in Algeria, Nigeria and Kuwait were largely offset by lower production in Iran.

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