Oil dip to $US12?

Press, 15 February 1986, Page 23

Oil dip to $US12?

NZPA-Reuter New York

Crude oil prices, which have fallen almost 50 per cent in the last three months, could dip to SUSI2 a barrel or lower, according to analysts at a symposium in New York.

“I think prices will fall to SUSI2 to SUSI 4 a barrel before stabilising,” said Mr Thomas McHale, an economist with the securities firm of Drexel, Burnham, Lambert. “But there is no safety net to stop prices from falling further.”

One analyst told the audience, made up of oil Industry officials and investors, that oil prices could tumble to SUSB a barrel before stabilising. The symposium was sponsored by the New York Mercantile Exchange, the market for trading energy futures.

The British North Sea Brent crude oil was trading at 3U518.58 a barrel, while the key United States crude, West Texas

intermediate, was at 5U515.85. Prices for both have fallen almost 50 per cent since November.

Analysts said the dramatic fall in oil prices over the last few months had been orchestrated by Saudi Arabia, the key O.P.E.C. producer, which has more than doubled Its output Mr Charles Maxwell, an analyst with the brokerage house of CJ. Lawrence, said he thought Saudi Arabia had raised its output in an effort to enforce production discipline within the Organisation of Petroleum Exporting Countries.

Mr Maxwell said that, if cutting prices to restore discipline within O.P.E.C. failed at the SUSI2 level, prices would break below that, to SUSB a barrel. Saudi Arabia has said it was seeking an agreement on production levels between O.P.E.C. and non-O.P.E.C. producers.

The World Bank estimated that a 25 per cent cut in prices could raise oil demand by 5 per cent over two years, and by up to 10 per cent after five years. The main beneficiaries of this would be the Gulf producers, such as Saudi Arabia, Kuwait and the United Arab Emirates, with their large reserves of lowcost oil.

Analysts also said that an effort to maintain rapidly dwindling cash reserves was behind the more aggressive tone taken by Saudi Arabia in pricing and producing its oil.

Mr McHale estimated that Saudi cash reserves have fallen to SUSSOB (SNZBXSB) from SUSIWB (5NZ289.28) in the last three and a half years. Analysts said that Saudi foreign reserves may not last much beyond the end of the decade at their present rate of depletion.

They said that rebuilding the reserves would require maintaining or raising Saudi oil production — meaning prices in the range of SUSI2 to SUSI 4 a barrel. Even at these levels, Saudi Arabia could produce profitably because its production costs are about SUSS a barrel