OPEC Oil Output Expected to Remain Strong

OPEC oil output hit a 1989 monthly high of 23.6 million barrels per day in December and likely will remain strong in early 1990 despite a new production-cutting accord, a Reuters survey released this week showed.

“I can’t see how they will cut back with oil prices as high as this,” one industry executive said. “If anything, they are more likely to do the opposite.”

December output by the Organization of Petroleum Exporting Countries was about 50,000 barrels per day greater than November’s 23.55 million barrels, according to the survey, based on information gathered from oil industry, official and shipping sources in the Middle East, Europe and the Americas.

An exceptionally cold spell in the United States pushed prices up sharply in late 1989. In the United States, industry analysts cautioned that the party is nearly over and prices have probably seen their peaks for the year.

Indeed, energy futures traded on the New York Mercantile Exchange ended sharply lower Friday after a day of sustained profit-taking turned into a frenzied sell-off just before the close.

“Under normal conditions, we’ve probably seen the top of the range,” said John Redpath at Energy Security Analysis Inc.

“I think that’s a high for the year at that point,” added Morris Greenberg, director of energy services at WEFA Group Inc. “After all, we’ve had abnormal circumstances to get where we are now.”

Crude oil prices had gained on the rally in heating oil, which soared last week to its highest since January, 1984, on bitter cold weather. Demand for crude also rose as refiners pumped at peak capacity to cash in on strong heating oil prices.

But heating oil’s strength is waning, analysts said, and lower refiner demand will coincide with ample supplies from expected OPEC overproduction in the first quarter.

“The way I see it, with not enough demand, too much supply and no OPEC discipline, prices go down,” said David Knapp, an economist at Brown Bros. Harriman.

The OPEC production agreement in force at the time had set a ceiling of 20.5 million barrels per day in a bid to keep prices up.

Prices are now at four-year highs of around $20 a barrel.

OPEC ministers agreed last November to raise the ceiling from Jan. 1 to 22.1 million barrels per day to take account of growing demand.