CGES foresees stable oil price to yearend

OPEC oil production [38731 bytes]

Crude oil prices are expected to remain fairly stable throughout the rest of the year, about $17.50/bbl for dated delivery Brent crude, with upward and downward pressures in balance.

This is the view of London's Centre for Global Energy Studies (CGES), which added that the members of the Organization of Petroleum Exporting Countries are unlikely to lose sleep before their meeting in Vienna on June 25.

Dull OPEC meeting?

"Nothing of substance will be discussed in Vienna," said CGES. "OPEC's quotas are irrelevant at present. The key question is whether the recent price fall is a temporary aberration or the beginning of a downward price drift that will last for months on end."

CGES said a downward lurch in prices brought dated Brent crude oil close to $17/bbl in June from an average of $19.20/bbl in May, caused by rising company stock cover.

"By the start of third quarter 1997," said CGES, "OECD stock cover will have risen to a level 4 days' worth above the-admittedly unusually low-level at the start of 1997.

"With the oil market in contango, there is simply too much oil around at the moment, especially in the Atlantic Basin. Yet the much-feared collapse in the oil price has not come about."

CGES attributed part of the current oil price weakness to lowered Asian interest in West African crudes, as about 1.8 million b/d of total capacity in Far East refineries has been shut in during May and June turnarounds.

"Demand will no doubt re-emerge in July," said CGES, "causing upwards of 600,000 b/d of West African crude to head eastward once more. There is also a possibility that a healthier than normal gasoline season in the U.S. will require further supplies from Europe, despite reports that gasoline sales have been disappointing so far."

Call on OPEC oil

CGES reckons the zero stock change call on OPEC oil in second half 1997 is likely to be about 26.7 million b/d.

Middle East Economic Survey reported that this was OPEC's average output in May (see table).

"Should companies in the OECD (Organisation for Economic Cooperation and Development) wish to rebuild their stock cover to 61 days," said CGES, "the call on OPEC will be nearer to 27.2 million b/d.

"This is enough to absorb the 200,000 b/d of extra output expected from OPEC's volume maximizers and leave Brent oscillating around an average level of $17.50/bbl during second half 1997, not far from its present level."