London, Nov 20, IRN-The Center for Global Energy Studies (CGES) on Monday drastically cut its forecast for benchmark Brent crude next year to below 50 dollars per barrel (dpb).
Its latest monthly report predicted in its reference scenario that rates in 2007 would average 49.9 dpb, down from 58.7 dpb it estimated in October.
The case was based on assuming that OPEC's output will average 29.6 million barrel per day (bpd) in the fourth quarter of this year and continue into early next year, despite being well below its target and a mere 0.2 m bpd down on the previous three months.
OPEC has claimed responsibility for stabilizing prices, with Brent still expect to average 59 dpb for the final quarter of 2006, but CGES said no other member but Saudi Arabia showed signs of cutting output.
"A 55 dpb price for the OPEC Basket helped to get a decision from OPEC to cut output, but it was not sufficiently low to deliver real cuts," it said.
Weak oil demand growth and rising non-OPEC oil production were said to be conspiring to raise inventory cover to levels up to 56 days' worth of company cover in the OECD, which have not been seen for more than four years.
The report suggested that this could pull the OPEC basket price down to 50 dpb early in the coming year and that in these circumstances, Saudi Arabia would once again trim production rather than let the price slide.
"After all, by 2007 its gross revenues from oil will be down by around dlrs 17 billion on the level attained in 2006," said the centre, founded by former Saudi Arabian oil minister Zaki Yamani.
But it believed that there was only so much Riyadh can do, or is prepared to do, unilaterally before it feels compelled to drag its fellow-members into the loop.
The report suggested that OPEC as a group will need to bring its output down to 28 m bpd in the second quarter of next year to prevent the oil price from dropping below 45 dpb.
"This is a tall order because it requires genuine cuts from the OPEC ten totalling 1.5 mbpd from October '06 levels by April 2007 without gaining a compensatory improvement in the price," it said.
The center believed that by then oil prices will be low enough that OPEC's member-countries will have 'little choice but to band together and slash output'.
It suggested that keeping OPEC's production at 28 mbpd manages to stabilize the basket price at around 47 dpb in the second half of next year.
Previously CGES has forecast that the price for benchmark Dated Brent crude to average over 70 dpb for the rest of the year and even continue at over 80 dpb for the first half of 2007.
In its latest predictions, it believed that even a cold winter would not make that much difference but that with global demands in line with higher IEA forecast, oil prices could average 62.4 dpb next year.
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