OPEC's View.

The head of OPEC's energy study unit Adnan Shihab-Eldin of Kuwait was on Sept. 22 quoted by AFP as saying crude oil prices could drop to as low as $40/b by mid-2007 over receding political concerns. But a collapse to pre-2003 prices was ruled out. He said: "It is very difficult for me to think of prices sliding to pre-2003 levels. We are talking about perhaps $40, $50 or $60".

Strong fundamentals of supply and demand, which underwent a dramatic change over the past three years, will continue to support a price of $40-60/b. But Shihab-Eldin said: "It's possible that the price may dip to $40, but not this year, maybe in 2007 and 2008" - depending on geo-political conflicts.

Shihab-Eldin, a top contender for the post of OPEC secretary-general, said "[crude oil] prices are moderating because the fear factor has receded". Shihab-Eldin was acting secretary-general under Kuwait's presidency of OPEC until end-2005. WTI prices, which have tripled over the past three years, dipped briefly below $60 on Sept. 27, a six-month low, before recovering some ground on Sept. 29.

Shibah-Eldin said OPEC may face difficult days in 2007 when 2m b/d of additional non-OPEC output will hit the market. He said: "This would require OPEC to take decisions with regards to the production ceiling and how much of its spare capacity should be introduced to the market. I think such decisions must be taken by the second quarter next year". OPEC's ministerial conference on Sept. 12 maintained its ceiling at 28m b/d despite weaker oil prices.

Shihab-Eldin said that the mid- to long-term future for OPEC was very promising as almost all the increase in crude oil supplies in the post-2012 years will come from OPEC countries. He added: "From now until 2012, non-OPEC and OPEC producers will equally share the increase in production, but after that it will be only OPEC producers who will provide any output increase".

Fundamentals of supply and demand will continue to play a crucial role in prevent-ing oil prices from collapsing. Shihab-Eldin said in the past three years, 80% of the growth in demand came from China, Asia and other developing nations, not from the industrialised countries. He said this will continue for decades to come. On the other hand, supply fundamentals have changed in which OPEC now plays a central role in providing any additional supplies, contrary to the formula in the past when non-OPEC producers played an important role. "These two major structural changes will continue to support oil prices in the long-term", he said.