Opec may be spurred to reduce oil supplies next year because of signs of a slowing global economy and stronger-than-expected supply from rival producers, consulting firm PFC Energy said. The views held by some in the Organisation of the Petroleum Exporting Countries that a strong economy would drive sizeable growth in world demand this year and that non-Opec supply would fall have proven groundless, PFC said in a report.
Oil prices have drawn support in 2010 from hopes of economic recovery, defying supply and demand fundamentals viewed by some as weak. But oil fell in August, and PFC said the influence of those fundamentals was coming to the fore. "If the death of hope signals the start of action, then Opec cuts to restore balance in the market will soon be upon us," Washington-based consultancy said in the report dated September 2.
PFC has called Opec policy moves correctly in the past, such as in September 2008 when it predicted a decision by the group to trim supplies by about 500,000 barrels per day. Opec meets in Vienna on October 14. The group has had a quiet year in 2010, meeting only in March and making no change to its output targets, as oil prices have largely traded within its comfort zone of $70 to $80 a barrel.
David Kirsch of PFC told Reuters there was little chance of a cut at the October meeting, and the report said "a decisive break in prices resulting in effective Opec action is not expected before the first quarter of 2011". PFC expects the price of US crude to average $74.65 a barrel in the third quarter and to move lower later in the year to average $69 in the fourth quarter.
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