Oil producers saw crude prices hit a 10-year low this week, leaving them only with a feeble hope of dramatic actions when Organization of Petroleum Exporting Countries (OPEC) energy ministers meet in Vienna on June 24.
Brent crude oil for prompt delivery crashed through the $11/bbl barrier, settling at $10.68/bbl at close of trading in London on June 16. At that time Brent crude for August delivery had reached $12.84/bbl, while New York Mercantile Exchange (Nymex) crude closed at $11.98/bbl on the New York spot market.
The only thing preventing prices falling even further was the news of a meeting of the Gulf Cooperation Council (GCC) in Riyadh that day, after which regional oil producers confirmed plans to cut exports following the recent deal between Saudi Arabia, Mexico, and Venezuela to trim a combined 450,000 b/d off production.
Agence France Presse (AFP) reported that the council's six members agreed to cut production by a total 415,000 b/d of oil, which includes the 225,000 b/d promised by Saudi Arabia under its second agreement with Mexico and Venezuela (OGJ, June 15, 1998, p. 19).
The agency said Kuwait and U.A.E. each agreed to cut output by 75,000 b/d, while Oman and Qatar both promised to hold back 20,000 b/d of production. Bahrain, the sixth member of the council, made no promise to cut its production, which is relatively tiny.
Phil Oxley, analyst at Paris-based Credit Lyonnais Rouse, told AFP the slight recovery in oil prices after the GCC announcement was, "a technical move, including short covering and bargain hunting after Monday's (June 15) slide. Price movements were amplified by a low trading volume."
Arnstein Wigestrand, vice-president of crude oil and NGL trading at Saga Petroleum AS, Oslo, told OGJ that, while the current low prices are not good for producers, "..they may at least get OPEC members to look at the market situation in a more realistic way."
Wigestrand doubts that OPEC members that have not yet promised further cuts will add more than 100,000 b/d to the reductions promised by Saudi Arabia, Mexico, Venezuela, and the GCC: "I'm not bullish; I doubt that OPEC will be able to do what is needed."
Wigestrand attributed the week's collapse in oil prices to a general lack of confidence in the market, caused to a large degree by stock levels that have grown so high that crude buyers are having problems finding plays.
He added that a return to speculation about an imminent end to United Nations sanctions against Iraq has also been a downward pressure on crude prices, but not a large influence compared with other factors.
Richard Butler, the U.N.'s chief weapons inspector, reportedly said U.N. sanctions against Iraq could be lifted within 2 months. Butler had agreed with Baghdad on a 2-month timetable to complete U.N. inspections of weapons stores in Iraq.
The U.N. has reportedly said it might be willing to accept less than 100% proof that Iraq has destroyed all its weapons of mass destruction before it will lift sanctions. U.N. Security Council members Russia and France, which both have companies lined up for Iraqi oil field developments once sanctions are lifted, have apparently been pressing inspectors to conclude checks without insisting on lesser details.
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