Oil hits two-year low

The price of oil tumbled to fresh two-year lows on Monday with no sign of a resolution to the price war brewing between major world crude producers loath to give up their market share, AFP reported

A barrel of Brent North Sea crude for January delivery fell as low as 16.65 dollars before stabilising somewhat at 17.10 dollars, down 65 cents from the previous close.

In New York, December-dated light sweet crude also stood at 17.10 dollars, after slumping 93 cents.

Few traders were anticipating a marked rebound in crude prices while the stand-off between the Organisation of Petroleum Exporting Countries (OPEC) and non-members continues.

OPEC energy chiefs shocked the market last week when they said they would not cut output again until rivals outside of the 11-nation club also make significant reductions in their volumes.

Key non-OPEC producers Russia and Norway have thus far shown little appetite for output cuts, to the frustration of OPEC.

Russia offered Monday to create a parallel structure to OPEC with other non-cartel oil producers to help stabilise prices, the RIA news agency reported.

The proposed structure, which would be informal, would mostly serve as a means to exchange information between participants, according to the report.

While low oil prices are a timely boon to oil-importing countries in the grips of an economic slowdown, they are a major headache for crude exporters that rely on oil revenues to keep their own economies motoring along.

"It is far from clear at the moment whether OPEC or non-OPEC producers will blink first, but one thing is certain, OPEC has raised the tension between the two groups," the London-based Centre for Global Energy Studies said Monday.

"One lesson that should have been learnt from 1998 is that non-OPEC producers can withstand lower oil prices than OPEC members, suggesting that OPEC's bluff may be called at the end of the year," the think-tank said in its Monthly Oil Report.

But the centre said prices were unlikely to fall as low as 10 dollars a barrel, as Kuwaiti Oil Minister Adel al-Sebeih warned they might last week.

If global oil output were to remain steady until 2002, Brent prices would stabilise at about 17 dollars a barrel in the first half of 2002, it predicted. In order for prices to fall as low as 10 dollars a barrel, production would need to remain unchanged and there would have to be almost no growth in demand in 2002, the report said.

"However, such a scenario defies economic logic," the report said.

"It is almost inconceivable that the 45 percent drop in annual average crude oil prices implied in this scenario would trigger no increase in oil demand," the report added.(*)