OPEC TOPICS: IRANIAN EMBARGO, WEAK DOLLAR

The U.S. embargo against Iran and lower revenues caused by a weak dollar are likely to be on the agenda for the next Organization of Petroleum Exporting Countries meeting June 19. London's Centre for Global Energy Studies (CGES) says while both issues are important they are distractions from the real problem facing OPEC: loss of market share to non-OPEC producers. "It is too early to assess the longer term consequences of the U.S. action against Iran," CGES said. "What is clear is that the
May 22, 1995
3 min read

The U.S. embargo against Iran and lower revenues caused by a weak dollar are likely to be on the agenda for the next Organization of Petroleum Exporting Countries meeting June 19.

London's Centre for Global Energy Studies (CGES) says while both issues are important they are distractions from the real problem facing OPEC: loss of market share to non-OPEC producers.

"It is too early to assess the longer term consequences of the U.S. action against Iran," CGES said. "What is clear is that the U.S. is determined to restrict the economic development of Iran-and, at the moment, Iraq too.

"The U.S. may even be hoping that Caspian oil riches will one day reduce the need for more Iranian and Iraqi oil, hence its recent keen interest in the region."

WHAT IRAN WILL ASK

CGES believes Iran will use the OPEC forum to seek assurances from other members-Saudi Arabia in particular-that they will not hike production to help U.S. companies replace Iranian crude supplies lost to the Clinton administration's trade embargo.

"Iran is likely to be reassured on this, which is bullish for oil prices," CGES said. "In the meantime, the market appears robust enough to rearrange the embargoed Iranian crude without serious price repercussions."

While oil prices have improved in recent weeks, CGES said, the lower value of the dollar has canceled ny potential boost to OPEC members oil revenues.

Iran told CGES it plans to raise the issue of flat revenues at the OPEC meeting, but there is little prospect of OPEC agreeing to go beyond studying the question, for there is no obvious alternative to dollar pricing.

OPEC's recent abandonment of attempts to manipulate oil prices by varying production is said by CGES to have forced the organization to compete on the same terms as the rest of the oil market. "It is faced with a situation in which its own actions to restrict output and bolster prices are of greater benefit to those outside the organization than to its members," CGES said.

OPEC is losing market share to non-OPEC producers, whose production increases are claiming the bulk of incremental demand.

"If OPEC wants to maintain or improve its market share and net revenues," CGES said, "it must concentrate on becoming as efficient as non-OPEC producers."

OIL PRICE, DEMAND

CGES figures the price for OPEC's basket of crude oils has averaged $18.40/bbl so far in the second quarter. Oil prices are expected to strengthen during the summer, but more modestly than of late.

"Prices appear to have run out of steam for the time being," CGES said, "with strong gasoline demand in the U.S. offset elsewhere in the world and the persistence of abundant stocks of middle distillates left over from the mild winter."

CGES expects world oil demand to grow 2-2.4% in each of the last two quarters of 1995. The center forecasts that OPEC production will reach 25.3 million b/d by fourth quarter 1995.

"This, combined with a further large increase in non-OPEC supplies averaging 1.2 million b/d of oil over the whole year, will lead to a weakening of prices in fourth quarter 1995 to $16.90/bbl, giving rise to an annual average price for the OPEC basket of $17.70/bbl, 14.5% higher than last year."

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