European oil rebounds on report of long-term deal to maintain prices

Oil futures and stock prices rose in Europe Monday following a report from Germany's leading bank that the pact between the Organization of Petroleum Exporting Countries and nonmember nations on quotas could evolve into a longer-term agreement, although without the support of Russia.

Jan. 28, 2002

2 min read

By the OGJ Online Staff

LONDON, Jan. 28 -- Oil futures and stock prices rose in Europe Monday following a report from Germany's leading bank that the oil quota pact between the Organization of Petroleum Exporting Countries (OPEC) and non-member nations could evolve into a longer-term agreement, although without the support of Russia.

The price buoyancy came despite estimates that some OPEC members are violating quotas set at a Dec. 28 meeting in Cairo.

Prices for Brent crude for March delivery rose 23¢ to $19.60/bbl on the London International Petroleum Exchange. Traders suggested that prices have firmed because of a combination of the report from Deutsche Bank and expectations for strengthening demand in the US.

Analysts at Deutsche Bank have predicted a robust outlook for oil prices in late 2002-03 as non-OPEC growth rates slow.

The bank warned that OPEC's demands for an extension of Russian production cuts into the second quarter of this year are likely to be resisted by the Russian government, due to domestic pressures.

In their note to clients, the analysts suggested that there was a general lack of resolve within OPEC for a major stand-off with Russia if it refuses second quarter cuts and even less of an appetite for a sustained price war to force a slowdown in non-OPEC growth.

Referring to OPEC's price band, they said the current weak demand will allow OPEC to accept an $18-23/bbl price band, rather than seeing a return to the $22-28 range, unless there is some unexpected production shortfall.

Traders in London suggested that OPEC members are probably exceeding their collective quota of 21.7 million b/d by 500,000 b/d. They suggested that the over-production is within the expected range given OPEC's past history, with Nigeria and Iran probably the biggest over-producers.