CGES: 'Uncertainties' cloud OPEC January output cut
The question mark hanging over global stocks of crude and products, coupled with ongoing uncertainties as to Iraq's oil supply, will make it impractical for Organization of Petroleum Exporting Countries ministers to rubberstamp an output cut at their upcoming January meeting, the London-based Centre for Global Energy Studies said Monday.
LONDON�The question mark hanging over global stocks of crude and products, coupled with ongoing uncertainties as to Iraq's oil supply, will make it impractical for Organization of Petroleum Exporting Countries ministers to rubberstamp an output cut at their upcoming January meeting, the London-based Centre for Global Energy Studies said Monday.
An oil price dependent on unpredictable winter weather in the West and the "equally uncertain actions of Iraq" means that it will be impossible for OPEC to rely on present forecasts of the per barrel price of crude and adjust its output accordingly to pre-empt a price collapse.
"Although crude oil prices have fallen heavily since the beginning of December," said CGES in its latest monthly oil report, "January looks to be too early for OPEC to decide to cut output. There are simply too many uncertainties that will not be resolved by the time the organization member meet next month."
OPEC fears that unless its current levels of production are slashed soon, an oil price collapse in the second quarter of next year will be inescapable. Some OPEC ministers, including Algeria's Energy and Mines Minister Chakib Khelil and United Arab Emirates Minister of Petroleum and Mineral Resources Obaid Din Saif Al-Nasseri are advocating a 1 million b/d output cut be implemented in January.
Temperatures in the first quarter of 2001, the CGES predicts, will be crucial. If temperatures do not drop, then prices will fall heavily over the coming year�as far as $14/bbl by the fourth quarter, assuming global oil demand at 77.7 million b/d in the first quarter, and an OPEC output frozen at 29.3 million bbl.
While the CGES believes prices are unlikely to fall steeply enough to trigger an output cut next month, it says, "the picture could be very different" by the time ministers meet again in March.
Assuming the "true" levels of end-of-winter stocks are known by then, it said, OPEC would have to cut production by at least 1.3 million b/d starting in the second quarter to ensure Brent crude averaged $19/bbl over the summer and recovered to $22/bbl in the fourth quarter as stockcover fell with rising demand.
Should the winter continue as cold as it has begun, adding 500,000 b/d to global demand in the first quarter of the new year, the CGES cautions, a 1.3 million b/d cut from OPEC would return the world to the brink of shortage. Dated Brent would dip to around $22/bbl over the summer, and stocks would be drawn down at a rate of 2 million b/d in the fourth quarter, leaving just 81 days of stockcover by 2002.
"If OPEC were to leave out unchanged in 2001 after a prolonged winter," noted the CGES, "oil prices would moderate throughout the year. In the latter half of 2001, dated Brent would stabilize between $18-$19/bbl."
While the CGES acknowledges this price level is outside that OPEC target price band, it suggests it may be "closer to the price need for the smooth functioning of the global oil industry."