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Thursday September 16, 3:25 pm Eastern Time

INTERVIEW-IEA head warns of further oil price rise

By Andrew Mitchell

PARIS Sept 16 (Reuters) - Oil importers face further price rises heading into the northern hemisphere winter as producers keep up strict supply curbs but consumers should escape severe supply shortages, the head of the International Energy Agency (IEA) said on Thursday.

``Oil prices do have the potential to go higher but there is not a question of a real shortage of supply,'' Robert Priddle, executive director of the West's Paris-based energy watchdog told Reuters in an interview.

Deep supply curbs from leading producers have already doubled oil prices to near three year highs and Priddle acknowledged that the speed of the rally was close to causing concern.

``Whether people like to admit it or not there is a band in which they feel comfortable and we are probably a bit beyond that,'' he said.

Export cartel OPEC is virtually certain to keep the supply curbs in place at next week's six-monthly meeting.

Priddle said if prices continue to rise after the turn of the year then OPEC should relax its grip when it meets again in March if it is serious about wanting market stability. ``It would be an obligation under their own philosophy,'' he said.

POSSIBLE Y2K DISRUPTIONS

Supply sensitivity will be particularly acute in coming months due to possible disruptions from the millennium computer bug at the turn of the year.

``There is a real risk that something, somewhere will stop working. A tanker control system could go down, for example, and the tanker starts drifting down the Straits of Hormuz,'' Priddle said.

Stoppages though are unlikely to last long. ``The situation is not grave and where the big oil companies are established they have put in a lot of effort to plan for any problems,'' he said.

Stocks of spare stored oil, while ebbing steadily, should also still be plentiful enough to stop industrialised countries running short. ``There is a lot of stock around,'' Priddle said.

The IEA head expressed hope that OPEC would stick by pledges earlier this year not to let rises spiral too high.

Oil price spikes in the 1970s which gave birth to the IEA itself as importers sought energy security protection ultimately backfired on producers as rival higher-cost output such as crude oil from the North Sea burst onstream.

So far oil companies' reluctance to invest in exploration and production after last year's price slump has slowed the arrival of new supplies to replace lost OPEC flows.

``Private sector companies were damaged last year and are not back to the same level of investment,'' Priddle said.

He hoped that rigid adherence to supply promises so far by OPEC -- which will inexorably take a bigger and bigger share of world oil supply in coming years -- showed that it may now mean business when it says it wants stable prices.

``OPEC lost a lot of confidence last year but they have found it again with their period of solidarity,'' he said. ``There are wise heads now at the top of OPEC that understand that it's not in their interest for prices to get too high.''

From Yahoo and Reuters

At least someone admits to the possibility of problems. When TSHTF they will be able to say that it was expected.

-- Mike Lang (webflier@erols.com), September 16, 1999

Answers

Mike, this is important article, can you give a url for it, can't seem to find it no matter how I search Reuters or Yahoo. Thanks much.

-- rumdoodles (rumdoodles@yahoo.com), September 16, 1999.

The IIEA announced the completion of the August 1999 version of the IEA Working Paper: The Year 2000 Problem and the Oil Industry weeks ago, but has not updated the site since July 26, 1999. The only version currently available is the March 1999 version.

I have emailed the IEA three times asking them to post the August 1999 Working Paper to the site. So far I have not even recieved the courtesy of a reply.

Please help me exert some pressure on the organization by emailing them at Y2K@iea.org and request that they post the August study and leave the links for the March study intact for purposes of comparison.

March 1999 Working Paper available at:

http://www.iea.org/ieay2k/homepage.htm click on IEA Y2K Documents

Thanks,

-- Waiting for the August 1999 Working Paper (dontemailme@nowhere.com), September 16, 1999.

There's an inordinate focus on what the bureaucrats think....the IEA...the Navy Report....the State Department...J Kosekin. If you're waiting for direction from them (like the herd) you're going to be in trouble.

Like Bob Prechter, I don't think the analysts drive the markets, I think the markets drive the analysts. The oil futures have finally been consistently moving up, reflecting some inherent risks, and now the bureaucrats and analysts are groping around for reasons why. Again this week, we see an 80 cent price pull back on crude and new buying again spawns a rapid advance. I'm wondering who's the big money behind this resilient market and this record high NYMEX & IPE open interest? My bet, although its nothing but a hunch, is it might be some oil money somewhere (Mideast?) tacidly acknowledging there's going to be some rollover probs.

The IEA has an ongoing industry reputation for underestimating oil demand and then having to go back and revise upward. They're doing it again in their 4th quarter projections. They're not factoring in y2k hoarding (but they're still projecting 3 mil bl/d worldwide stock draw)

-- Downstreamer (downstream@bigfoot.com), September 16, 1999.

first, the link to Mike's article...

http://biz.yahoo.com/rf/ 990916/4x.html

`There is a real risk that something, somewhere will stop working. A tanker control system could go down, for example, and the tanker starts drifting down the Straits of Hormuz,'' Priddle said.

I'm still puzzled by the following...if safety becomes an issue with regard to tanker and cargo ships then how do they expect to sail without insurance? Will it be worth the risk to insurance carriers if the reliability of the ship itself is in question?

Mike

==============================================================

-- Michael Taylor (mtdesign3@aol.com), September 16, 1999.

Michael, thanks for posting the URL. Like the airlines, I think that insurance may be the ultimate factor though I doubt any acknowledgement of that will be forthcoming. December will be interesting.

Downsider

-- Mike Lang (webflier@erols.com), September 16, 1999.

Michael, thanks for posting the URL. Like the airlines, I think that insurance may be the ultimate factor though I doubt any acknowledgement of that will be forthcoming. December will be interesting.

Downstreamer, it is obvious that you know more about this org. than I do yet I am not waiting for anyone to tell me to prepare. I am finished.

I still try to understand the process and information is always helpful to me.

Dontmailme- sent an E per your request. I wonder how many unanswered Es on y2k there have been?

-- Mike Lang (webflier@erols.com), September 16, 1999.

The short answer to the insurance question is that there's always someone stupid enough to write any risk, or unscrupulous enough to write it and pass it along through reinsurance to someone else stupid enough to take it. The insurance and reinsurance industries are swimming in capital built up through the stock market, so there's a home for every risk--often at foolhardy rates.

-- Thinman (thinman38@hotmail.com), September 16, 1999.