LONDON, 20 December 2005 — OPEC needs to slash production by some 1.3 million barrels per day early next year to stop an oil price slide, the Center for Global Energy Studies warned in its monthly report published yesterday.
The Organization of Petroleum Exporting Countries “is expected to come under pressure to cut oil production in order to support prices once the (northern hemisphere) winter ends”, the research group said in its influential report.
“Unless global oil demand growth bounces back strongly... or non-OPEC members suffer another disastrous year in 2006, the CGES expects OPEC will need to reduce output by around 1.3 million barrels per day (mbpd) to keep the price of their reference basket of crudes above $45 per barrel.” “If it cannot find the unity to do so, prices could fall sharply,” it warned.
The OPEC reference basket comprises 11 types of main crude exports from each of its members and is usually $5 to $8 below New York’s light sweet crude. The basket price stood at $53.25 per barrel on Friday. OPEC’s production quota stands at 28.0 mbpd and it decided last week in Kuwait not to renew its offer for emergency extra output of 2.0 mbpd.
As a result, actual production will remain at some 30 mbpd, when Iraq’s contribution is included. The country has been excluded from the group’s quota system since 1990, when Iraq invaded neighboring Kuwait.
The powerful 11-nation organization also said it would meet again on Jan. 31 in Vienna, and again on March 8, 2006 - two meetings which “will be keenly watched”, the CGES said. The research group also forecast that global oil demand growth will fall to 1.4 percent this year from 3.8 percent in 2004, before steadying at 1.5 percent in 2006.
However, the CGES said that “the greatest uncertainty for 2006 is the strength of oil demand growth”, particularly from China and the United States. Chinese officials expect consumption to rise by more than six percent, nearly twice the rate in 2005. But the CGES cautioned that “further easing of (China’s) electricity supply problem, and transportation fuel prices that remain below international levels, could weaken this forecast”.
Turning to the United States, the report noted that “robust economic growth and post-hurricane reconstruction should underpin oil demand growth next year”.
However, “fears are being raised about the ballooning trade and budget deficits”, it said, adding: “Cold weather could come to OPEC’s rescue in the early part of the year, delaying the need for an output cut, but forecasts of a cold winter may already have been factored into prices.”
World oil prices wilted yesterday. New York’s main contract, light sweet crude for delivery in January, fell 66 cents to $57.40 per barrel in pit trading, after losing $1.93 on Friday. In London yesterday, the price of Brent North Sea crude for February delivery shed 79 cents to $56.34 per barrel in electronic trading. It sank $2.27 on Friday.
