Experts upgrade 2001 oil price forecast to $23.45

LONDON (Reuters) -- There is good and bad news for oil consumers battered by a rampaging rally that sent crude oil prices this week rocketing to their highest in a decade.

Limited relief is in sight some time in 2001, when benchmark Brent blend is expected to fall to an average of $23.45 a barrel, according to a Reuters poll of 15 oil experts and economists.

But experts predict oil will stay ablaze just above $30 at least through the fourth quarter of 2000. Even that, though, would mark a sharp discount from current 10-year highs of $34.50 a barrel.

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Though the 2001 forecast marks a $2.36 a barrel upward revision from a similar survey in June, it shows a $4.67, or 17 percent, decline from this year's expected average of $28.12 a barrel.

At $23.45 next year, crude would be 18 percent more expensive than the $19.25 a barrel average over the past 10 years, without allowing for inflation.

"Given the global supply-demand mismatch, tight capacity constraints and Middle East tensions and worries about stocks, we will continue to see high prices for some time," said David Brown, chief economist at Bear Stearns in London.

"OPEC needs to get up to bat with a big increase. OPEC's latest hike will take six to eight weeks to make an impact on the market. Oil will stay above $30 in the fourth quarter."

Oil consuming nations will have to endure high and volatile prices through the peak demand winter season, with everything from market wild card Iraq to severe cold spells raising the specter of new price spikes, the experts said.

"There are some sharp upside risks like Iraq stopping exports during the U.S. presidential election after 10 years of sanctions. There could also be some supply disruptions in Nigeria," said Geoff Pyne, an oil consultant at Standard Bank in London.

"There are risks that nasty things could happen during the winter in terms of distillate (heating oil and diesel) stocks. You have to be on your guard. To simply pour crude into the market is not enough."

Brent averaged $18 a barrel in 1999 after rising from $13.50 during the 1998 price slump.

Analysts believe oil prices will not lose significant ground until the second quarter of next year, when petroleum stocks should start moving back toward healthier levels.

In the United States, the world's biggest oil consumer, winter heating requirements are fueling anxiety, with stocks running 40 percent below last year and fears that an early cold snap could trigger a further price panic.

While some analysts said OPEC has to open its taps even wider to knock down prices, others say the cartel has no power to influence market change because high prices are linked to low product stocks and speculation, not insufficient crude supplies.

Prices are expected to fall sharply in the spring, giving the Organization of the Petroleum Exporting Countries breathing space after several frustrating attempts to cool the market.

Iraq has been cranking up production despite a decade of stringent United Nations sanctions limiting exports. Baghdad's current exports of 2.3 million barrels daily mean a halt to Iraqi exports would send prices spiraling out of control.

Iraq took the oil world's center stage this week when President Saddam Hussein warned that fellow OPEC member states should ignore pressure from "superpowers" on producers to contain rocketing prices.

Such developments make it difficult to forecast oil prices.

Any hefty OPEC supply hike depends on cartel kingpin Saudi Arabia, which holds the only substantial idle capacity in the exporter group.

But the market is confused about how much actual extra oil OPEC is delivering to the market after its latest increase of 800,000 bpd, making its vows to stabilize prices appear impotent.

Copyright 2000 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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