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Oil prices likely to drift until second half of the year, energy watchdog says International Energy Agency statistics suggest Russia not cooperating with OPEC’s strategy to squeeze crude oil supplies by The Associated Press Business Writer
Soft demand and a mild winter in major oil markets have offset the impact of cuts in crude production and kept prices for oil and refined products from rising, a respected survey said Feb. 8.
Due to conflicting market forces, pressure for a substantial increase in crude prices probably won’t build until an incipient economic recovery picks up during the second half of the year, the International Energy Agency said.
In fact, prices might fall before then. IEA statistics suggest that Russia, the world’s second-biggest oil producer, isn’t cooperating with OPEC’s strategy to squeeze crude supplies, and an OPEC official expressed fears Feb. 8 of a possible rupture in relations between Russia and the producers’ cartel.
The official, speaking on condition of anonymity from OPEC’s headquarters in Vienna, Austria, said he didn’t expect Russia’s cooperation, such as it is, to last beyond March. OPEC is therefore likely to face a severe test this spring in trying to avoid a supply glut and even a damaging price war, he said.
Global demand for oil fell to 76.3 million barrels a day during the last quarter of 2001, down half a million barrels a day compared to the same three months of the previous year.
Average demand growth for the full year was the lowest since 1985, the agency said in its monthly oil market report.
The global economic slowdown was largely to blame, together with unseasonably warm weather in North America and parts of Europe. Prices firmed up somewhat Members of the Organization of Petroleum Exporting Countries have tried to shore up weak crude prices by coordinating output cuts together with Russia and four other non-OPEC producers.
The cuts took effect Jan. 1 and shaved 510,000 barrels a day from world oil production, which slipped to 76.3 million barrels a day in January, the report said.
Although prices firmed up somewhat late last month, they stayed within the same broad range seen since November. The IEA said it doesn’t foresee a major change in oil markets until a widely expected economic recovery picks up in the third quarter.
The Paris-based IEA is the energy watchdog for the Organization for Economic Cooperation and Development, a group of rich oil-importing nations.
Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London, agreed with the IEA that oil prices should remain relatively stable until demand recovers.
“I think prices are caught in a vice-like range,” of $18-$22 a barrel for U.S. light, sweet crude, he said.
Crude oil for March delivery rose 54 cents to $20.18 in afternoon trading Feb. 8 on the New York Mercantile Exchange. OPEC members above quotas The report noted that nine of the 10 OPEC countries that agreed to cut their oil production on Jan. 1 actually did so. However, even after reducing output, OPEC members still were pumping 6 percent, or 1.3 million barrels a day, above their new quotas.
The OPEC official in Vienna challenged the IEA’s statistics but conceded that if they are correct, then OPEC is doing a disastrous job at managing its own production.
Gignoux argued that OPEC’s limited success in decreasing output last month is impressive nonetheless. In a series of incremental cuts, the cartel has pared back its production by more than 3 million barrels a day since January 2001.
“This is an aggressive act by OPEC. They’re cutting their own revenues,” Gignoux said. Some non-OPEC production up Of the non-OPEC nations that went along with the group’s strategy to trim supplies, only Norway and Mexico complied, the IEA said. Oman’s output was unchanged in January, and Angola and Russia actually boosted production.
Russia increased its exports by about 500,000 barrels a day from December to January, instead of cutting its oil exports by 150,000 barrels a day as it told OPEC two months ago it would, the IEA said.
Russia was extremely reluctant to go along with OPEC’s reduction plan in the first place. Russian oil companies and government officials have said publicly since then that they want to increase oil output this year, thereby “casting a cloud” over Russia’s future cooperation with OPEC, the agency said. OPEC’s secretary-general, Ali Rodriguez, hopes to visit Moscow for talks in the first week of March. The OPEC official in Vienna warned that prices could plunge if the two sides fail to reach an understanding about crude output.
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