Monthly Magazine Feb 1999

Bag of Mixed Fortunes

The energy world opened a mixed bag of fortunes as the world entered the New Year. Though oil prices, which broke the psychological barrier of 10 dollars a barrel in the month of December, rose slightly in the middle of January bringing a sort of smile on the face of the producers, the oil production by the OPEC member-countries rose to a record level, grounding the sagging efforts of the producers to bring about some discipline among them. At the same time, oil revenues of the OPC member-states declined last year from the previous year. The income decline of the GCC countries was greater than that of anybody else.

The production by OPEC states rose to its highest in five months in December last year, defeating whatever efforts by the producers to bring some discipline in the market supply to revive oil revenues. The OPEC hoisted its output by 20,000 barrels per day (bpd) to 27.45 million bpd from 27.43 million in November.

On the other hand, supplies from 10 member countries, which pledged output cuts last year to try to boost the falling prices was down 100,000 bpd from November, mainly due to better discipline by Venezuela. Excluding Iraq, the 10 raised compliance with last year's production cuts of 2.6 million bpd to 72 per cent from 68 per cent in November. But the sanction-affected Iraq, which is not a party to the OPEC efforts, continued to more than make up the cutbacks. Its swollen export plunged the OPEC efforts to 50 per cent for the first time since July last year, the first month when the full package of 2.6 million bpd took effect.

Glimmer of Hope

At the same time, oil prices received a small push in all the markets, in US, Europe and Asia. The Brent North Sea crude rose above 12 dollars a barrel in the beginning of the third week of January this year for the first time in two months, raising a glimmer of hope. Experts say that two reasons, a little bit of cold weather and the reports that oil consumption was better than the people thought, contributed to the rise. They agree that the rise can be sustained only if the OPEC members took effective steps to rein in the overproduction in response to the plunging demand in the slack world economy. "We still need an OPEC meeting and more co-operation on the part of the members.

In Asia crude prices rose in the third week of January on a combination of strong regional demand, delayed market reaction to lower US oil inventories, and expectations that oil producing countries will meet soon to discuss ways of boosting prices.

Kuwait is reported to have asked for advancing the March meeting to February. But the market watchers say that this was not enough to bolster the market. "We have been down this road many times before and the market now refuses to react to talks, it is action people want to see," they say. Isn't there some truth in it?

Some action came immediately on the part of the OPEC. Its President Youcef Yousfi has invited oil ministers to meet in February. He is reported to be in consultations with OPEC and non-OPEC producers for an extraordinary meeting in February. His invitation is in response to the Kuwaiti request. Kuwait was of the opinion that OPEC cannot afford to wait until late March, as the producers need to agree on output cuts to boost prices before winter ends.

Though the earlier cutbacks announced have removed some oversupply, the US inventory remains at 18.2 million barrels above the last year's level. But analysts were sceptical of an earlier meeting at such a short notice. Some say that the new meeting hinges on new Venezuelan President Hugo Chavez.

Alarming News

A study that was published recently should ring an alarm bell the OPEC states, especially in the GCC countries. The study said that oil revenues of the OPEC states declined from 170 billion dollars in 1997 to 109 billion dollars in 1998, a fall of 35.88 per cent. The news is more alarming for the GCC producers. The fall in their revenues is almost 39 per cent from 90 billion dollars to 55 billion, the study said.

But it says that the expectations of two per cent rise in world oil demand could contribute to overcome the crisis to some extent in 1999 despite the current gloom. Besides the expected rise from 74.3 million bpd to 75.5 million bpd,
the study feels, there will be a positive impact on the market by the response by non-OPEC

producers like Egypt and Oman and the announcement by the President Chavez to comply with the output quotas and production cuts.
The decline in revenues is bound to put strains on the budgets of the OPEC states, the paper said adding that its members have a mission at hand because their mutual benefits expect them to abide by OPEC decisions. This only can restore balance in the market and help its economies avoid further declines and difficulties that can have a lot of repercussions. This factor can be proved from the fact that all the Arab bourses rose as the oil prices registered a small increase from the lowest level. All other producers, both within the OPEC and outside, should take lesson from this and co-operate to correct the imbalances in the market.

International Congress

Egypt will host an international energy congress of the Middle East and North Africa in February to focus the attention on critical issues facing the energy and sector and their impact on the future. The congress is organised by the Institute for International Research (IIR). The congress will include a two-day conference and a half-day workshop. Both regional and international experts are expected to take part in the congress.

Egyptian Minister of Electricity and Energy Mr. Maher Abaza will inaugurate the congress which will presided over by Dr. Bakr Hamza Khosaim, director General of the Saudi Consolidated Electricity Company West. The speakers are likely to focus on an overall view of energy supply in the light of the global change.