So far 1998 is turning into OPEC’s worst nightmare. On June 11, crude
oil set a 10-year low when it fell to $12.75 a barrel. A week later it promptly
set a 12-year low by plummeting to an average price of $10.11 per barrel —
half of the official OPEC target of $21. Adjust that selling price for inflation
and oil is near its low for the 20th century.
This after OPEC nations pledge in March to cut production by 1.72 million
barrels. The precipitous fall induced OPEC nations to pledge once again to cut
oil production, though most analysts again doubt whether OPEC has the ability
or will to do so.
The situation is not likely to brighten for OPEC nations anytime soon. The
United Nations clearly seems on a path of removing economic sanctions from Iraq,
perhaps as early as October, which is likely to flood the world market with
even more oil. Meanwhile demand from Asia is likely to remain depressed as the
economic crisis there continues.
As one trader in a Reuters story was quoted as saying, “It doesn’t
look very good. It might go lower. There s nothing supporting the market right
now. Unless we get some bullish news, this is going to continue to drop.”
Despite the drop in oil prices, however, gasoline prices in the United States
were up slightly to $1.14 a gallon nationwide as seasonal demand exerts an effect.
Most analysts agree that about the only thing that could help OPEC now would
be a coordinated drastic cut in oil output. Unfortunately time is working against
the success of such a move. Since so much oil is already in the pipeline, so
to speak, even a cut of 1 million barrels per day might take several months
to register significant price increases.
Sources:
Crude oil futures drop to lowest level in nearly decade. Herbert G. McCann,
Associated Press, June 11, 1998.
OPEC faces uphill battle against worst crude oil market in years. Dirk Beveridge,
Associated Press, June 17, 1998.
Oil prices drop to lowest point since 1986. Reuters News Service, June 15,
1998.
Lundberg: gas prices up, not down. Associated Press, June 15, 1998.
Gulf oil states hesitant on more output cuts. Steven Swindells, Reuters, June
14, 1998.
Oil stagnates at $13. Reuters, June 12, 1998
Dropping crude oil prices hit 12-year lows this week. Andrew Kelly, Reuters,
June 18, 1998.