OPEC Rumors Catapult Oil Prices Up 51 Cents a Barrel
Traders’ sentiment on world oil prices, which have declined by 20% this winter, changed suddenly Thursday as a flurry of inconclusive activity by OPEC members and other developments drove prices up by 51 cents a barrel.
Separately, in a disclosure that probably had no immediate effect on oil prices but has much greater long-term price implications, the U.S. government lowered by 40% its estimate of how much domestic oil and natural gas remains to be discovered.
The new assessment by the U.S. Geological Survey is more nearly in line with those of major oil companies and underscores the long-term problem of declining U.S. reserves in the face of ever-rising estimates of oil held by members of the Organization of Petroleum Exporting Countries.
In recent days, OPEC members have been struggling to stem a steady drop in the price of crude oil to far below the official benchmark price of $18 a barrel that was affirmed at the organization’s last meeting in December.
OPEC officials Thursday denied a report that they might cut production by 5% in an effort to bolster prices. However, the cartel’s mere discussion of the possibility of an emergency meeting of its pricing committee and some supportive rhetoric by non-OPEC oil-producing nations sent the key U.S. price up to $16 a barrel.
Oil analysts, meanwhile, are increasingly voicing the opinion that declining end-of-winter demand for oil products was partly to blame for the recent price drop. This should change in the spring, and one longtime analyst Thursday predicted $20-a-barrel oil by fall.
Paul Mlotok of Salomon Bros. in New York, said the current weak prices stem from the cartel’s flat yearlong production quota, which fails to take into account seasonal differences. Thus, he said, production is too high now and will be too low later.
“Although oil prices have been down in recent weeks, we do not foresee a collapse. Near term, we expect OPEC to respond to the danger signals and manage production, so as to put a floor under the oil price,” Mlotok said.
In Vienna, OPEC spokesman James Audu said the cartel has made no decision on whether to hold an emergency meeting of its pricing panel. Venezuela and Algeria supported such a meeting, but the three other members of the committee--Saudi Arabia, Indonesia and Nigeria--were said Thursday to be opposed.
But reports persisted that OPEC is prepared to curb production, with some saying that the cut might be as large as 10%. Several analysts predicted that the cartel would discreetly trim production, now estimated at about 17.5 million barrels a day, in a bid to whittle down the global oil surplus.
Experts from several non-OPEC nations met Thursday for a second day in London on measures to bolster oil prices and coordinate efforts with OPEC. Industry sources said non-OPEC production--not including the Soviet Union’s--is running about 500,000 barrels a day above year-ago levels at around 25 million barrels a day.
Steep Revision
Analysts attribute the recent price rout to rising production by non-OPEC nations and spreading discounts by OPEC members.
Meanwhile, officials at the U.S. Geological Survey said they now believe that the nation has 33.4 billion barrels of undiscovered crude oil, about 40% less than was indicated in 1981, the last time an estimate was made.
The amount of natural gas is now estimated at 254 trillion cubic feet versus a previous estimate of 426.8 trillion, the Interior Department agency said in confirming a newspaper report based on material submitted at a recent geologists conference.
Though the latest government estimate represents a steep revision, it apparently is slightly more optimistic than the conclusions reached over the past few years by major oil companies, which have been repeatedly disappointed by the results of domestic exploration in recent years.
The poor results in once-promising areas of Alaska and parts of the mainland United States are a major reason that big oil companies have shifted their exploration emphasis to overseas during the past two years.
Charles D. Masters, chief of the Geological Survey’s world energy resources program, said the latest assessment is modestly higher than those made by Exxon and Shell since 1985.
“This should not be a big surprise,” Masters said. “It cannot be a surprise to the industry, either. Up to this point, nobody has paid a hell of a lot of attention to our numbers.”
Estimating undiscovered resources is a different exercise from estimating the size of proven reserves, a more concrete and oft-cited figure. In both categories, the United States continues on a downward trend, while the estimated proven reserves of OPEC nations rose sharply in the past year.
