Action likely if oil price falls further

15 April 1994

Analysts expect OPEC to take emergency measures if prices fall closer to $10 a barrel during the late spring and summer in the northern hemisphere, the period when demand is at a cyclical low.

OPEC agreed at its Geneva meeting on 25-26 March to maintain the overall production ceiling of 24.52 million barrels a day (b/d) for the remainder of 1994. Member states have also agreed to stick to their individual allocations.

There was a strong initial adverse reaction to the decision, which analysts say fails to address the seasonal downswing in oil demand in the second and third quarters. However, oil prices recovered on technical factors in the first week of April. At close of trading on 5 April, dated Brent blend was quoted at $14.30 a barrel, compared with $13.25 a barrel on 31 March.

Analysts say there are no underlying factors working to lift prices. However, OPEC action is forecast if prices fall too far and too fast in the next six months, analysts say.

The fall in oil prices has given a long-term boost to Gulf oil, according to Kuwaiti economist Jasem al-Sadoun. He forecast in an interview with the official Emirates news agency on 30 March that Gulf Arab states would account for 50 per cent of world oil needs by 2010, when world oil demand will be more than 92 million b/d.

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