CGES warns of fourth quarter oil price slide

London's Centre for Global Energy Studies (CGES) warns that world oil prices will drop this year unless Organization of Petroleum Exporting Countries members make room for Iraq's limited oil sales. CGES pointed out that present oil prices are firm, despite OPEC's failure at its last ministerial meeting to come to grips with overproduction among members (OGJ, June 17, p. 19).

July 1, 1996

3 min read

London's Centre for Global Energy Studies (CGES) warns that world oil prices will drop this year unless Organization of Petroleum Exporting Countries members make room for Iraq's limited oil sales.

CGES pointed out that present oil prices are firm, despite OPEC's failure at its last ministerial meeting to come to grips with overproduction among members (OGJ, June 17, p. 19).

CGES said, "Now that Iraq has finally agreed to United Nations terms for limited oil sales, the price outlook for the rest of the year looks decidedly weak unless OPEC makes room for the additional 800,000 b/d ex- pected from Iraq.

"However, nobody is willing to concede market share.

"Indeed, Venezuela still refuses to acknowledge that its output exceeds its quota. Saudi Arabia is unwilling to force the issue, arguing that low stocks, stronger oil demand, and further delays to incremental non-OPEC production will enable the market to absorb Iraqi oil without depressing prices."

CGES says the Saudi outlook is true for the short term. Markets are paying a premium for prompt crude, showing that refiners are undersupplied. U.S. refiners are near their seasonal demand peak, and Far East refiners are finishing turnarounds.

Also, North Sea production is almost 500,000 b/d short of expectations because of delayed field developments and underperformance of some fields.

CGES said, "Although the market is currently able to absorb all the oil being offered, the situation is likely to be very different by the time Iraqi oil starts to flow."

Industry stocks are rising fast, with winter over and refiners running flat out to rebuild product inventories. Stock could be close to normal seasonal levels by the third quarter, CGES said.

"Even without Iraq, the volume of OPEC crude required to meet demand and maintain normal stock levels is expected to fall sharply during the third quarter" (Table 1) [42350 bytes].

OPEC oil flow

Meanwhile, Middle East Economic Survey (MEES) reported OPEC oil production remained steady in May, averaging 25.75 million b/d, a drop of 30,000 b/d from April's total.

However, Venezuela push- ed its quota violation to new heights, with production from the country averaging more than 3 million b/d for the first time.

Other countries pushing production higher were Nigeria, U.A.E., Libya, Qatar, and Gabon. Officials of Gabon gave notice at the June ministerial meeting their country will resign from OPEC.

Only a drop in Iran's erratic production levels kept OPEC's total down (Table 2) [37618 bytes].