OPEC must slash output after winter to prevent price collapse

Published October 10th, 2000 - 02:00 GMT

OPEC members must make "appropriate" cuts in their oil production in the second quarter of next year or face the consequences of a major price collapse, a specialised economic report warned Monday. 


The report by the National Bank of Kuwait (NBK), the emirate's largest bank, said that as demand is expected to drop at the end of winter, excess oil supplies will allow for a rebuilding of stocks, which would trigger a price collapse. 


"Crude (oil) supply is seen to be adequate to meet demand and the increase in output would just result in a build up in stocks once the market cools down following the winter season," NBK said in its September report.  


"If OPEC does not act fast to reduce output in the second quarter of 2001, a stock rebuild could quickly result in a collapse in prices possibly to as low as 10 dollars per barrel," it added. 


The Organisation of the Petroleum Exporting Countries has made three large output increases so far this year to bring total production of the 11-member cartel to about 29 million barrels per day (bpd). 


Similar output increases in 1997 triggered a massive collapse in oil prices the following year to under 10 dollars a barrel. Only progressive cuts stopped the slide and revived the upward trend. Oil prices edged down slightly Friday with the benchmark Brent North Sea crude oil for November delivery sold at 30.12 dollars a barrel. 


NBK said higher crude oil prices have more to do with the shipping and refining capacity, and less with production."The main factors behind the run-up in prices were low gasoline stocks in the summer in the US and Europe, followed by low heating stocks going into winter, exacerbated by refinery bottlenecks. 


"The outlook for oil prices will depend on OPEC's ability to act to proactively reduce output once low stocks of heating fuel are no longer pressurising the market," the NBK said. 


Analysts in London have said the extra 800,000 barrels a day of crude oil promised by OPEC from October 1, expected to arrive next week, would bring further relief to prices. 


OPEC oil ministers last June adopted a price band mechanism to increase or decrease production in a bid to maintain oil prices within 22-28 dollars a barrel.– (AFP) 


© Agence France Presse 2000 



© 2000 Mena Report (www.menareport.com)

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