CGES cites cause of oil price rally

The recent oil price rally was all too brief because it was based on special factors. So says London's Centre for Global Energy Studies (CGES), which noted, "Dated Brent (crude) averaged $13.40/ bbl in September, but there were special reasons for its strength: storms in the Gulf of Mexico boosted (WTI) prices, drawing in Brent cargoes; North Sea output had been low; and supply disruptions occurred in Nigeria and Australia."

Nov. 2, 1998

2 min read

The recent oil price rally was all too brief because it was based on special factors.

So says London's Centre for Global Energy Studies (CGES), which noted, "Dated Brent (crude) averaged $13.40/ bbl in September, but there were special reasons for its strength: storms in the Gulf of Mexico boosted (WTI) prices, drawing in Brent cargoes; North Sea output had been low; and supply disruptions occurred in Nigeria and Australia."

By Oct. 19's close, dated Brent had fallen to $11.58/bbl, while December Brent had plunged to $12.73/bbl. CGES cited U.S. refineries in turnaround, with two shut for storm damage repair, paring runs by 1 million b/d just when much oil is headed for the U.S.

"Adding to the gloom," said CGES, "is the IMF's prediction of 2% and possibly lower growth for 1998, China's slowdown, fears of contagion, and news that South Korea's oil demand in August was 16% down on 1997. In the circumstances, Mexico's vow to keep its cuts until mid-'99 and Saudi Arabia/Venezuela's pledge to try to extend OPEC's cuts until end-'99 are the very least they could do."

CGES said that, as long as prices are low, compliance with output cuts likely will remain good (OGJ, June 29, 1998, p. 28): "If OPEC compliance averages 95%, oil prices should rise a little in the new year, with Brent expected to average $13.80/bbl in each of the first two quarters of 1999. Without a severe winter, though, oil demand is expected to grow by only 1.3% in first quarter 1999 and 1.8% in second quarter 1999, year on year.

"Stocks are likely to remain comfortable through the winter, undermining prices again in the second half of the year, to give an average price for Brent in 1999 of just $13.50/bbl."