Thought you'd all find this interesting. As for me...I'll believe it when I see it. OPEC countries haven't EVER stuck by output cut agreements. Someone is always producing more than their quota. If OPEC producers had a brain cell working, they'd increase output now --while prices near $30.00/bbl -- not in March when, presumably, prices will drop. Stories like this suggest, to me, that OPEC is currently INCAPABLE of increasing output. Again, they'd all have to be certifiably crazy to forego increasing production right now.

OPEC Seen Boosting Oil Output in March Faces Growing Pressure To Ramp Up Production and Contain Oil Prices, Which Have Tripled Over the Past Year

By Doug Palmer Reuters

WASHINGTON (Feb. 3) - Economic self-interest should compel OPEC to raise crude oil production this year by about two million barrels a day, and this could occur as early as its March meeting, World Bank officials told reporters.

The 11-member Organization of Petroleum Exporting Countries is facing growing political pressure from big customers, such as the United States, to ramp up production and contain world oil prices, which have nearly tripled over the past year.

``We think the most likely scenario is in March they will raise production,'' Shane Streifel, energy economist for the World Bank, told a briefing in advance of Thursday's release of the Bank's quarterly commodity forecast.

The increase could be as much as two million barrels per day, based on the International Energy Agency's estimate of the gap between world consumption and output in the first quarter, he said. The meeting is scheduled to begin on March 27.

The economists cautioned it was also possible that OPEC would decide at its meeting next month not to increase production. ``It's not a foregone conclusion,'' Streifel said.

The cartel could also choose to gradually increase output over a period of months to keep prices firmly underpinned, the economists noted.

But without OPEC pumping more oil into the market, prices may rise substantially from current prices of around $28 a barrel, Streifel said.

Skyrocketing prices could jolt the economies of many countries, and offer a tempting incentive for non-OPEC producers to increase their own exploration and production, Streifel said.

``If prices remain high, it becomes very, very profitable to explore and develop oil,'' he said, noting that some non-OPEC members have already started those efforts.

U.S. Energy Secretary Bill Richardson has launched a round of diplomatic talks with energy ministers in Norway and Mexico, and will travel to Saudi Arabia and Kuwait later this month for talks about volatile oil prices. The Clinton administration, which insists it is not trying to pressure OPEC to increase output, is also considering a proposal to release oil from the nation's emergency stockpile to ease prices.

Based on the assumption that OPEC will increase output, the World Bank forecast oil prices would begin dropping after the first quarter of 2000 and eventually settle below $20 per barrel, Streifel said.

How quickly oil prices could fall to that level will depend on the size and timing of OPEC's decision, he said.

In March 1999, OPEC decided to cut production by nearly five million barrels per day, three months after world oil prices skidded to $10 a barrel. The cartel has been unusually disciplined, with relatively little cheating by members, according to oil industry analysts.

The slash in production has trimmed global oil stocks to their lowest level in decades, said Don Mitchell, the principal economist for the World Bank's commodity team.

If OPEC decides not to increase production, as members have suggested might be the case, ``you could see a sustained period of high prices'', Mitchell said.

Over the long term, plentiful world oil supplies should eventually pull prices down, he said.

13:14 02-03-00

1999 Reuters Limited.

-- (cashtradr@aol.com), February 03, 2000

Answers

Cashtradr, hi,

I would be interested in knowing why you think it is in OPEC's interests to increase production now, rather than in March. It seems to me that it would be in their direct financial and economic interests (#1) to co-operate and keep their production where it is now, or (#2) to reduce their production, and drive prices even higher. Thanks.

-- bz (beezee@statesville.net), February 03, 2000.

I think it would be in their economic interests to increase production and keep prices high.

That would be unacceptable now, but given six more weeks of tight supply, inventory drawdown and availability concerns OPEC just might have enough leverage to say I'll give you more at the current price but if the price drops so does the supply...

-- Bill P (porterwn@one.net), February 03, 2000.

Mr. Streifel of the esteemed World Bank is either an incredible optimist or he is having some trouble with basic math. Curly tried to run the numbers. Lets see now if OPEC produces 26 million barrels a day at $28 per barrel, the daily revenue would be 728 million dollars a day. If they increased production by 2 million barrels a day and the price dropped to $20 a barrel their income would fall to 560 million dollars a day. Are they that stupid? I think not. They may agree to increase production to ease shortages if they can to avoid additional political problems (wars etc.) but production problems may prevent this increase from happening. Even if they do increase production, the price is likely to increase or to fall by only a nominal amount as the surplus overhang that was causing the low prices is gone. Talk about spin. This guy puts the Clinton team to shame.

-- Moe (Moe@3stooges.gom), February 03, 2000.

You're missing the boat cashtradr......when you wrote "If OPEC producers had a brain cell working, they'd increase output now -- while prices near $30.00/bbl -- not in March when, presumably, prices will drop. Stories like this suggest, to me, that OPEC is currently INCAPABLE of increasing output. Again, they'd all have to be certifiably crazy to forego increasing production right now. "

By increasing output now they would CAUSE prices to drop by March. It's called supply and demand....If demand is higher than supply then prices tend to be high....and vice versa. Rather, thet would have to be certifiably crazy to increase production right now!

Sure, they could turn on the taps and make a few extra bucks today. But at what cost? Prices would plummet down to perhaps where they were a year ago, less than $11.00 per barrel and their revenues would be hit hard.

Nah, the prime reason prices are higher today is that for once in their life, OPEC members actually got their shit together and stuck by their output agreements (for the most part). Historically they have cheated on each other consistently, to their own demise. Perhaps they have learned something finally?? I wouldn't count on it as they have a long record of cheating on each other however if they truly have learned their lessons then we are in for oil prices in probably the $25 to $30 range for a much longer time.

Good for them......they were idiots to give it away for so long!

-- Craig (craig@ccinet.ab.ca), February 03, 2000.

I LOVE to see spin and jawboning happening at the same time...

C

-- Chuck, a night driver (rienzoo@en.com), February 03, 2000.

In the past six months or so, energy demand in Asia has risen concomitantly with the region's economic rebound. Demand in Europe is flat and demand in the US is on the rise. Demand and some measure of production cutbacks have been the impetus for higher energy costs throughout 1999 -- not OPEC production cuts alone. If you think that OPEC should be applauded for finally getting higher oil prices, then maybe they should be kicked for having let prices slide to $10.75/bbl in late-1998. In other words, if they can curtail production in 1999/00 to raise the price, what prevented them from doing it before? The only thing that prevented them from generating higher prices, prior to the collapse of the oil market in 1998, was the organization's inability to jointly maintain production cuts. The environment of increasing demand in second-half 1999 was just what they needed to offset their own shortage of discipline. When oil prices started to slide in earnest in 1997, OPEC producers out-did one another cheating on quotas because they were in desperate need of the revenue. Since that time, they need the revenues more than ever. Henry Ford figured out, a long time ago, that what you can't get in price, you can more than make up for in volume. That's been the OPEC credo. Flood the market with cheap oil and demand becomes increasingly more elastic. My point is this: If they had a braincell working among them, OPEC producers would be increasing production of materials for prompt delivery (especially since the cash market is trading much higher than futures) right now. If supplies are as tight as the cash market indicates, they might lose a buck or two a barrel, but they'd still be $7-$8/bbl better off than they were in September. Econ 101 teaches that, under normal circumstances, when demand increases so does supply. After all, OPEC isn't representative of all of the world's oil producers. If OPEC production cuts are all that's behind the surge in oil prices, then futures prices would indicate considerably lower values for post-March contracts. That's just not the case. I stand by my previous post: If OPEC producers had a braincell working, they'd increase output now -- for prompt delivery - - and benefit from the immediate gain in prices. Since they are not, I have to believe they cannot.

-- (cashtradr@aol.com), February 03, 2000.