Forecasts predict low oil price

10 June 1994

A new report says present oil price levels are likely to be lasting despite OPEC's claim that its members may not have enough money to maintain output over the next quarter-century.

The new report, released by Societe Generale Strauss Turnbull of the UK, says that there is unlikely to be any long-term shortfall in the supply of oil. 'The inherent tendency (is) for oil supplies always to exceed demand, irrespective of the rate of growth in oil consumption,' the report says.

It dismissed fears that a capital shortage among OPEC members could lead to long-term shortages later this decade when demand is expected to rise strongly as Europe and Japan move out of recession. It concedes that there could be a temporary mismatch between supply and demand that could push prices up. Over the longer term, there is always a tendency for prices to fall, the report concludes.

The report says that non-OPEC output will be maintained through cost- cutting and the application of new technology. This is likely to dampen upward price pressure.

The new report comes as OPEC maintains its campaign to publicise the costs of investing to maintain production capacity. The organisation's secretary-general, Dr Subroto, said in Stavanger on 30 May that it would cost $80,000 million-90,000 million to double OPEC output in the next 25 years. This scale of increase would be needed to meet rising demand.

Subroto said low oil prices were not generating enough money for OPEC to invest in production capacity. He urged Norway and other non-OPEC countries to hold output at 1993 levels.

Oil prices have held their gains of recent weeks. London July futures for Brent were trading well above $16 a barrel on 1 June which compares with prices of below $13 a barrel, a five-year low, that prevailed in February. New York traders say that Turkish proposals to flush up to 12 million barrels of oil out of the Iraqi export pipeline, if implemented, could have an impact on the market, which is still reacting nervously to signs of excess supply. At the Stavanger conference Subroto said he did not expect OPEC members to raise production at the 15 June meeting in Vienna. He expected no change in the current production ceiling or member states' individual quota allocations.

The Paris-based IEA is confident that demand is rising as the industrialised countries recover from recession. Consumers are less concerned with energy conservation now that incomes are rising but the strongest growth in demand is coming from the Asia-Pacific region.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications