Worl bank comment on OIL scenarios

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Oil Prices vs OPEC Production

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Thursday February 3, 1:03 pm Eastern Time OPEC likely to boost oil output in March-World Bank By Doug Palmer

WASHINGTON, Feb 3 (Reuters) - Economic self-interest should compel OPEC to raise crude oil production this year by about two million barrels a day, and this could occur as early as its March meeting, World Bank officials told reporters.

The 11-member Organization of Petroleum Exporting Countries is facing growing political pressure from big customers, such as the United States, to ramp up production and contain world oil prices, which have nearly tripled over the past year.

``We think the most likely scenario is in March they will raise production,'' Shane Streifel, energy economist for the World Bank, told a briefing in advance of Thursday's release of the Bank's quarterly commodity forecast.

The increase could be as much as two million barrels per day, based on the International Energy Agency's estimate of the gap between world consumption and output in the first quarter, he said. The meeting is scheduled to begin on March 27.

The economists cautioned it was also possible that OPEC would decide at its meeting next month not to increase production. ``It's not a foregone conclusion,'' Streifel said.

The cartel could also choose to gradually increase output over a period of months to keep prices firmly underpinned, the economists noted.

But without OPEC pumping more oil into the market, prices may rise substantially from current prices of around $28 a barrel, Streifel said.

Skyrocketing prices could jolt the economies of many countries, and offer a tempting incentive for non-OPEC producers to increase their own exploration and production, Streifel said.

``If prices remain high, it becomes very, very profitable to explore and develop oil,'' he said, noting that some non-OPEC members have already started those efforts.

U.S. Energy Secretary Bill Richardson has launched a round of diplomatic talks with energy ministers in Norway and Mexico, and will travel to Saudi Arabia and Kuwait later this month for talks about volatile oil prices. The Clinton administration, which insists it is not trying to pressure OPEC to increase output, is also considering a proposal to release oil from the nation's emergency stockpile to ease prices.

Based on the assumption that OPEC will increase output, the World Bank forecast oil prices would begin dropping after the first quarter of 2000 and eventually settle below $20 per barrel, Streifel said.

How quickly oil prices could fall to that level will depend on the size and timing of OPEC's decision, he said.

In March 1999, OPEC decided to cut production by nearly five million barrels per day, three months after world oil prices skidded to $10 a barrel. The cartel has been unusually disciplined, with relatively little cheating by members, according to oil industry analysts.

The slash in production has trimmed global oil stocks to their lowest level in decades, said Don Mitchell, the principal economist for the World Bank's commodity team.

If OPEC decides not to increase production, as members have suggested might be the case, ``you could see a sustained period of high prices'', Mitchell said.

Over the long term, plentiful world oil supplies should eventually pull prices down, he said.

Comments: It appears there is not much confusion on near term oil production as Richardson and Clinton are pushing OPEC to raise production sometime after the March 27 OPEC meeting. It would seem that if OPEC wanted to increase production effective immediately because they were all together in Davos or norway or by telephone.

That is unless Bill and Bill and OPEC know that increased production in next few weeks is not possible due to "unspecified technical reasons beyond anyone's control" aka Y2K.

The comments from the World Bank seems to put near equal probability that OPEC will increase oil production later this year.

-- Bill P (porterwn@one.net), February 03, 2000

Answers

That is unless Bill and Bill and OPEC know that increased production in next few weeks is not possible due to "unspecified technical reasons beyond anyone's control" aka Y2K.

It's possible that OPEC will be back to normal by March 27. Until then, everything that can be done is being done, but behind the scenes. Nobody in OPEC wants to admit problems, because of political considerations. There is far more going on here than meets the eye.

-- Dog Gone (dawgawn@yahoo.com), February 03, 2000.


Thank you D.G.

I suspect that come March 27 OPEC will have such leverage that they could have the US, Europe and Japan finance and rebuild completely new facilities if needed to increase production.

I doubt that OPEC will increase production and lower prices; they might increase production and stabilize prices.

My read is that most of the world's oil has been found so the risk is that other producers will increase production faster than OPEC and bring down the price. So it appears OPEC is in the drivers seat and can put production and price at the best level that suits their own goals and objectives.

-- Bill P (porterwn@one.net), February 03, 2000.


So AMERICA bring on the hydrogen engine. And lets clean up the environment. justthinkin

-- justthinkin com (justthinkin@H2.com), February 03, 2000.

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