Oil price touches $US18 a barrel

Press, 24 December 1986, Page 10

Oil price touches $US18 a barrel

NZPA-Reuter London The free-market oil price rose to touch SUSIB a barrel in London on Monday (early yesterday, N.Z. time) in early reaction to the week-end agreement on new cuts in output by the Organisation of Petroleum Exporting Countries. The cartel has set SUSIB — a rise of about 20 per cent on average prices in the free market over recent months — as its 1987 goal. Its new agreement, reached in Geneva on Saturday, says all its crude oil will be fixed at SUSIB from February. When trading began in the free market, after the weekend, operators’ immediate reaction was that the production cuts agreed by OPEC would indeed tighten the supply/ demand balance.

Towards mid-morning crude for February deliv-

ery from Britain’s North Sea Brent Field, a widelytraded variety and an oil industry pricing “barometer,” was traded at SUSIB, up $1.40 on last Friday, market participants said. A little later, however, the market felt that the rally had been overdone and prices slipped with trade being done below 5U517.50. The OPEC accord, from which one of the 13 members, Iraq, excluded itself, proposes to cut the cartel’s over-all output by about one million barrels daily, to around 16 million.

From February, OPEC also plans to abandon selling in line with free market pricing ideas and set a take-it-or-leave-it price for its oil at an average $lB.

Market analysts say February may see the agreement really put to the test in the market.

The OPEC agreement buoyed the price of gold on Monday morning. Gold began in Zurich at 8U5394.25 a troy ounce, up $1.50 on its Friday close in New York.

Investors favour gold if they scent a whiff of inflation from higher oil prices. But although it was a shade firmer the gold price has hardly soared on the OPEC news.

Financial experts say a SUSIB price is likely to give only a very slight nudge to inflation with petrol and heating oil price rises likely to only around either side of 5

per cent in most cases. They note that oil prices were at SUS3O a year ago and say that all OPEC is doing is regaining some of the ground which it lost when the market collapsed in a bout of ruinous overproduction in the (Northern Hemisphere) summer.