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Analysts: OPEC looking to strike oil price balance Arthur Andersen-Cambridge Energy Research Associates study says prices likely to drop in coming months Mark Babineck Associated Press Writer
Even as oil prices flirt with levels last seen at the onset of the Gulf War, a new study is questioning how long international oil producers will continue to hold down production.
In the 14th edition of their joint industry outlook, researchers from Arthur Andersen and Cambridge Energy Research Associates said Feb. 7 that oil prices currently hovering near $29 a barrel are likely to drop in the coming months as OPEC gauges what the world can afford.
“OPEC and key non-OPEC producers are keenly aware of the risks of prices rising too much as well as the risks of prices tumbling down toward single digits once again,” said the report, titled “World Oil Trends 2000.”
In short, said Cambridge Energy president Joseph Stanislaw, producing nations want to strike a balance between robust prices and affordable oil that won’t break energy-dependent countries, particularly Far East nations emerging from economic crises.
“These prices for one quarter are fine. For two quarters, it’s unsure. They don’t want to destroy their markets,” Stanislaw said. “The question is, when does (the high-price environment) impact world economic growth?”
OPEC expected to increase production in late spring The Organization of the Petroleum Exporting Countries likely will increase production in the late spring to bring prices back down to a more manageable level and blunt inflation, which could slow economic growth and stifle demand worldwide.
Rising oil prices have had a limited effect on inflation in the United States, though certain industries are beginning to feel the pinch. Several airlines have tacked on $20 fuel surcharges to round-trip air fares, while a number of cargo companies have also raised rates.
Few in the industry seem confident that the market will sustain $29 per barrel, nearly triple the price in December 1998. That outlook explains why exploration companies have been slow to act, said Victor Burk, Arthur Andersen’s top energy expert.
“If oil producers believe the high oil prices that have prevailed since the second half of 1999 are sustainable, that belief could create investment incentives to increase worldwide oil production capacity even more,” Burk said.
OPEC to meet March 27 OPEC is scheduled to meet March 27 to make a decision on production levels. Currently, OPEC is holding back 6 million barrels of potential daily production, the study said. About 65 million barrels are produced worldwide each day.
Similarly, the World Bank said the first week of February that it expected oil to fall from near $30 to below $20 later this year, a price level that would both be profitable for producers and a relief for consumers.
On Feb. 7, West Texas crude for delivery in March fell 42 cents to $28.50 in trading on the New York Mercantile Exchange.
OPEC’s likely target would be for prices in the low-$20 range, Stanislaw said, but he cautioned that the market should expect continued volatility.
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