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NEWS OF THE WEEK
BUSINESS
November 12, 2001
Volume 79, Number 46
CENEAR 79 46 p. 6
ISSN 0009-2347
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OPEC MULLS CUTS
Oil-producing countries want to cushion fall in prices; natural gas costs drop

ALEX TULLO

As oil prices steadily ebb toward their lowest levels in more than two years as a result of a slowdown in the global economy, the Organization of Petroleum Exporting Countries (OPEC) is meeting this week in Vienna to discuss production cuts.

Soon after the Sept. 11 terrorist attacks, OPEC ministers decided not to decrease production, despite the weakening economy. Between the attacks and that OPEC meeting, West Texas Intermediate(WTI) prices fell about $5.00 per barrel to $21.46. Since then, prices have drifted to about $20, according to the Department of Energy Energy Information Administration (EIA).

Petroleum prices were relatively stable until the attacks. Spot prices for WTI began the year at about $28 per bbl and had ranged between $26 and $31 per bbl until September, EIA says.

In a short-term energy outlook published last week, EIA forecast that OPEC production cuts are likely only to stem the fall of oil prices. "We expect monthly average crude oil prices to stabilize near their current levels until next spring, with some upward drift in the second half of 2002 if U.S. and world oil demand growth recovers," EIA says.

The weak economy has also affected prices for natural gas--which determine prices for ethane feedstock used in ethylene crackers. Following an unprecedented spike in prices for natural gas last November and December, wellhead prices began the year at $8.06 per 1,000 cu ft. From 1996 through 1999, prices had averaged around $2.00.

The spike led chemical executives and analysts to predict that prices would average in the $3.00 to $5.00 range over the next few years until more production came on-line.

However, since January, natural gas prices have actually decreased, hitting $2.55 in September. EIA says that natural gas, at least for the next five months, should trade in the $2.00 to $3.00 range.

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