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Oil rally hits $22, has more in the tank

By Richard Mably

LONDON, Sept 8 (Reuters) - Oil importers on Wednesday were facing the prospect of a severe winter price spike as OPEC exporters prepared to turn the screw on stringent supply restrictions.

Benchmark Brent crude in London was valued at $21.90 a barrel after jumping more than 60 cents on Tuesday to $22.04, the highest oil price since February 1997.

``As long as key producers give no hint of relaxing output restraint the price of Brent will probably approach $25 in the fourth quarter,'' said Mike Barry of London's Energy Market Consultants.

``The latest price rise is certainly a vote of confidence in OPEC compliance with its output cuts,'' said Peter Gignoux, head of the London energy desk at brokers Salomon Smith Barney.

OPEC officials this week have made clear there is no prospect the cartel will vote for an early easing of the export limits they adopted in March to lift prices from 22-year lows.

Kuwait's Oil Minister Sheikh Saud Nasser al-Sabah said on Tuesday there were no plans yet for ministers, who meet in Vienna on September 22, to review the output cuts before next March.

OPEC Secretary-General Rilwanu Lukman said it was ``quite obvious'' restrictions would remain in place.

Sheikh Saud said the producers would not even meet again before the spring to reconsider their policy but many analysts are convinced that extra supplies are needed soon if prices aren't going to threaten post-Gulf War highs of $25 a barrel.

Prices received an extra filip after Venezuela's largest oil union, Fedepetrol, said on Tuesday it would call an indefinite strike from September 14 in support of wage negotiations.

Venezuela is OPEC's second largest producer and a leading supplier into the world's biggest market, the United States.

Analysts are predicting further price gains because production curbs mean there will be a large gap between supply and demand in the approach to winter.

Commercial oil stockpiles, at record levels only a year ago, are expected to drain so quickly over the next few months that inventories will have fallen to multi-year lows.

``At the moment the figures point to a winter stockdraw so enormous it will push stocks down to the lowest levels of 1996,'' said Nick Antill of Morgan Stanley Dean Witter.

``The question OPEC has to ask is does it want to do that?'' OPEC ministers, who earlier this year said they wanted to avoid pushing prices too high, now insist there is no prospect of last year's surplus stockpiles being eliminated soon.

But Energy Market Consultants, which specialises in projecting forward inventory movements, expects any excess against the normal levels of 1997 to have disappeared by the end of September.

It is projecting that stock cover in the industrialised nations of the OECD will have fallen from 60 days of forward supply at the end of July to just 55 days by the end of November.

OPEC insiders think the cartel, trying to repair some of the damage of last year's price slump, is content with current oil prices but may consider some action if they go much higher.

``In this kind of price bracket OPEC is happy and no one will want to rock the boat. It's when prices get to $23-25 a barrel like in 1997 that there may be some movement,'' said one OPEC delegate.

``There is little likelihood of raising production in September, but a significant chance they will as the turn of the year or early next year,'' said Antill at Morgan Stanley.


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