CGES speakers see weak oil prices lingering awhile

Slowing oil demand growth and increasing global oil production capacity will ensure that crude oil prices remain low for the foreseeable future. This was the conclusion of a number of speakers at a Centre for Global Energy Studies (CGES) conference in London Sept. 8-9. Sheikh Ahmed Zaki Yamani, Saudi Arabia's oil minister during 1962-86 and now chairman of CGES, said that oil demand growth will be weaker over the next 10 years than it has been for the past decade. "OPEC's ability to

Sept. 21, 1998

3 min read

Slowing oil demand growth and increasing global oil production capacity will ensure that crude oil prices remain low for the foreseeable future.

This was the conclusion of a number of speakers at a Centre for Global Energy Studies (CGES) conference in London Sept. 8-9.

Sheikh Ahmed Zaki Yamani, Saudi Arabia's oil minister during 1962-86 and now chairman of CGES, said that oil demand growth will be weaker over the next 10 years than it has been for the past decade.

"OPEC's ability to produce oil, on the other hand," said Yamani, "will continue to rise.

"We have on this score Iraq's eventual rehabilitation as an oil producer, Venezuela's push to exploit its massive heavy oil resources, Iran's new-found willingness to take on foreign partners, and Algeria's welcoming of western firms to find and develop oil."

OPEC's demise?

Yamani said that a key question, given low oil prices for the foreseeable future, was whether OPEC will manage to hold together under such pressure or fall apart.

The fallout from the demise of OPEC would be oil price wars and extreme price instability, said Yamani: "For my part, I am not sure that OPEC will be able to remain intact.

"Its members' national interests have become increasingly divergent and, as a result, the organization's ability to influence the market has been eroded significantly."

OPEC Sec. Gen. Rilwanu Lukman told delegates a return to typical winter weather after the comparative warmth of the winter of 1997-98 should bring a cumulative increase in oil demand over 2 years of 2-2.5 million b/d.

"There is undoubtedly sufficient spare capacity in the oil producing countries, largely in OPEC members, to meet this rise," said Lukman, "and I would even say that there could be risk of renewed oversupply of oil if producers return to a free-for-all policy.

"There will be a need for continuing cooperation between OPEC and non-OPEC oil exporters in order to ensure a balanced oil market and a recovery to price levels that are more reasonable and fairer to both producers and consumers."

Lukman said that recent cutbacks, particularly by OPEC members, would not yield much higher prices this year, but "ellipseThey are laying the foundations for a sustained price recovery in 1999. Under our assumptions, such a recovery should continue into the next few years."

DOE view

Mark Rodekohr, director of energy information administration, U.S. Department of Energy, told delegates it was impossible in today's market for enough producers to get together to control price in a meaningful manner.

Rodekohr said world oil demand is expected to rise to 76.7 million b/d in 1999, which would take average world oil demand growth for the period 1997-99 to 2.4%/year.

He said that the average imported crude oil price for U.S. refiners is expected to remain at less than $14/bbl for the forecast period, with averages for the years in question expected to be $12.78/bbl in 1998 and $13.59 in 1999, down from $18.57/bbl in 1997.

"There is not much room," said Rodekohr, "for significant oil price recovery in the next year at least. Inventories are high and likely to remain so. Demand growth will be limited by the Asian and Russian problems, and we haven't had a cold winter for the last few years."