• ACI Russia

08/11/1998 10:20:48 FOCUS-Oil prices plunge to fresh 10-yr low

By William Maclean

LONDON, Aug 11 (Reuters) - Oil prices hit a fresh

10-year-low on Tuesday following a savaging triggered by

the spectre of a prolonged glut.

Brent crude was trading four cents firmer at $11.95

a barrel at 1010 GMT after sliding to a new low of

$11.87, below the previous 10-year floor of $11.90 set

in March.

Brent had slid a sharp 68 cents on Monday to settle

at $11.91 under pressure from a mountainous glut of

crude and products.

Brokers said there was no overnight news to propel

prices either way but a crippling oversupply would

continue to dominate the trading landscape.

"Anything could happen," one broker said.

The lifeblood of industrial economies has not been

this cheap in real terms for 25 years. North Sea Brent

is now about 40 percent cheaper than last year's average


The fall has slashed earnings of member states of

the Organisation of the Petroleum Exporting Countries

(OPEC), raising fears for economic growth and the

political stability of the oil-dependent producers.

London brokers GNI said that neither renewed

confrontation between the United Nations and Iraq nor

bombings of U.S. embassies in East Africa were likely to

support the market.

"The reality is that neither of these two issues is

likely to seriously interrupt the world supply of oil in

the near term," the GNI Energy Report said.

GNI and other analysts say relief for prices could

come only from strict compliance with OPEC output cuts

and a particularly cold northern hemisphere winter which

would hike demand for heating oil.

Brent crashed on Monday under the impact of rapid

losses on U.S. oil product contracts on the New York

Mercantile Exchange triggered by brimming stock levels

in the world's biggest energy market.

Brent last touched a low of $11.90 in March, which

prompted producers to make the first of two sets of

output cuts aimed at propping up prices.

Compliance by OPEC with its mandated 2.6 million

barrels per day (bpd) of cuts has been patchy, however,

with less than two-thirds adherence assessed by a

Reuters survey in July.

Oil prices had hovered around the $13 level in

recent weeks with the market weighed down by massive

oversupply resulting from rising output and a downturn

in demand in crisis-hit Asia.

But many experts do not expect any major improvement

in prices until the last quarter of the year.

Further pressure on the oil complex comes from

traders' expectations that a stand-off between the

United Nations and Iraq will be settled by diplomacy

rather than force of arms.

They also predict that any crisis would not lead to

a halt in the U.N.-monitored oil-for-food programme

under which Iraq exports around 1.6 million bpd to pay

for food and medicine.

Prices in dollars per barrel:

Aug 11 Aug 10

(1003 GMT) (close)

IPE September Brent 11.90 11.91

NYMEX September light crude 12.98 13.05

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