Brent hits new low as GCC mulls oil price

Brent crude oil futures fell below $10/bbl for the first time on Dec. 7, as Gulf Cooperation Council (GCC) leaders met to debate rock-bottom oil prices. Brent for January delivery bottomed out at $9.90/bbl and settled at $10.26/ bbl by the close of London trading. At that time, prompt-delivery Brent stood at $9.61/bbl.

Dec. 14, 1998

2 min read

Brent crude oil futures fell below $10/bbl for the first time on Dec. 7, as Gulf Cooperation Council (GCC) leaders met to debate rock-bottom oil prices.

Brent for January delivery bottomed out at $9.90/bbl and settled at $10.26/ bbl by the close of London trading. At that time, prompt-delivery Brent stood at $9.61/bbl.

Slight rebound

On Dec. 8, oil prices edged upwards as news emerged of a deal by the GCC oil producers on new production cuts. The council comprises Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, and the U.A.E. Yet the reports were soon denied by GCC officials at the council's summit in Abu Dhabi. And, having reached $10.64/bbl at one point that day, January-delivery Brent fell away to $10.41/bbl by the close of London trading.

Hope for production cutbacks was based on a news agency report that claimed GCC oil producers had agreed to reduce output further in March and had asked Organization of Petroleum Exporting Countries (OPEC) members to join them.

However, while the GCC leaders spent much of the 3-day summit discussing oil prices, they agreed to nothing more concrete than to adhere to current OPEC quotas until the end of 1999.

Yet this is a longer-term commitment than was managed by the OPEC oil ministers, who met in Vienna at the end of November and failed to extend the current agreement, which runs only until the end of June (OGJ, Dec. 7, 1998, p. 36).

Julian Lee, oil analyst at London's Centre for Global Energy Studies (CGES), said that, with OPEC having decided not to consider further cutbacks, at least until it meets in March, no more production cuts are likely without a further big drop in oil prices.

"This may be a painful period for many producers," said Lee, "but the political differences within OPEC, and between Saudi Arabia and Iran in particular, have created a major stumbling block. We'll just have to wait until March to see if the pain outweighs politics then."

On a more positive note, Lee added that Venezuela had increased production last month, despite its promised cuts, but that this hike was likely to be short-lived. Lee said the new Venezuelan government is more likely to favor OPEC's line on production cuts than the previous regime.