London: Opec urged to cut output to avoid price crash

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Opec urged to cut output to avoid price crash

By FT.com staff

Published: September 18 2000 12:01GMT | Last Updated: September 18 2000 19:51GMT

The Organisation of Petroleum Exporting Countries will have to make a dramatic cut in exports next year if it is to prevent prices collapsing, according to the Centre for Global Energy Studies on Monday.

The London-based centre argues in its monthly oil report, contrary to Opec's recent decision to increase oil output, that exports should be cut to prevent prices falling to the 12 year lows of $10 a barrel seen in early 1998.

The oil report says that prices are currently buoyed by tight heating oil stocks. Once demand for distillates begins to ease towards the end of winter, crude stocks will build and crude prices will fall away rapidly.

If Opec maintains its expected October output level of 29.3m barrels a day through 2001, prices would fall back towards $10 a barrel in the fourth quarter as stocks rose while demand still suffered from this year's high prices. CGES said Opec needs to pare output by 1.8m b/d to 27.5m b/d from the start of the second quarter of 2001 to achieve an average Brent crude price of $24.30 a barrel in 2001. However, a mild northern hemisphere winter would require earlier cut to 28m b/d, while a mild winter would require a temporary cut in the second quarter.

The report reiterates that lack of refinery capacity, due to the late timing of Opec's output increases of this year, means prices will remain volatile into the winter with a premium on light, sweet crudes that are most suited to refined product output.

But oil prices will weaken in 2001 "and the fall will be dramatic if Opec is not quick to react."

In early afternoon trading on Monday, the November Brent crude contract on the International Petroleum Exchange stood 7c higher at $34.05, off a morning high of $34.20. Prices continued to find support from renewed tension between Iraq and Kuwait but volume was low.

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-- Carl Jenkins (Somewherepress@aol.com), September 19, 2000


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