London (Platts)--18Sep2007

World oil markets will remain short of crude unless OPEC puts enough oil
on the market at prices that will attract buyers, and Saudi Arabia in
particular needs to offer bigger discounts to sell more heavy oil, the Centre
for Global Energy Studies said in a report released this week.

     But the CGES also said that while the world needed more OPEC oil in the
short term, difficult times could be ahead for the producer group if world
economic growth falters.

     "OPEC is afraid of triggering a price collapse, but unless it puts enough
oil on to the market at prices that attract buyers the world will remain short
of oil and prices will continue to rise in the short term," the London-based
think-tank founded by former Saudi oil minister Zaki Yamani said.

     OPEC agreed on September 11 in Vienna to increase actual crude production
by 500,000 b/d from November 1. The increase will come on top of estimated
August output of 26.75 million b/d for the 10 members--excluding Iraq and new
member Angola--bound by output agreements and raises their output target to
27.253 million b/d. The previous target for the OPEC-10 was 25.8 million b/d.

     OPEC kingpin Saudi Arabia will boost its production by 327,000 b/d,
assuming more than 60% of the increase, according to figures released by the
group last Friday.

     The Saudis' new production allocation will be 8.943 million b/d. That is
up from August output of 8.616 million b/d, according to figures from
secondary sources used by OPEC.

     "Agreeing to produce more oil is one thing, actually selling it will
depend on its quality and relative price," the CGES said, pointing out that
while OPEC had long argued that it had been meeting demand from its customers,
demand was closely related to price.

     "It is all very well to blame a lack of refining capacity for high
prices, but by refusing to price their heavy oil cheaply enough relative to
benchmark grades producers must share the responsibility and, in the short
term, they are the only ones who can ease the situation," the CGES said. "This
means either producing more light oil, or increasing significantly the
discounts for heavy grades when setting price formulas for the coming months."

     The CGES said OPEC had succeeded in drawing down global oil stocks
counter-seasonally at a rate of 500,000 b/d over the first three quarters of
this year. "The last time oil inventories were as low at the start of the
Northern Hemisphere winter as they will be this year was in 2004," it said,
noting that oil demand tends to rise by at least 1 million b/d between the
third and fourth quarters.
     
     MORE OPEC OIL NEEDED OVER WINTER 

     Having prevented stocks from building over the summer, OPEC now needs to
supply more oil over the winter, the CGES said. "However, the time lags
involved in moving oil from Saudi Arabia and turning it into the products
demanded by final consumers mean that any additional oil sold in November will
not reach end-users until next year," it added.

     At the same time, however, pressures on the global economy are building,
clouding the longer-term outlook, the center said. "OPEC argues that high oil
prices have had little impact on the global economy, but it is precisely
because of strong economic growth that oil prices have risen so far. As soon
as that growth falters, which it will do if the US economy continues to slow
and undermines the export-led growth in China, the situation could change
rapidly," it said.

     In the meantime, the CGES believes that the additional 500,000 b/d
promised by OPEC from the beginning of November will come too late to help
bring prices down over the winter, and will, "at best, prevent them from
rising much higher than they already are" if the center's view of very low oil
demand growth turns out to be correct.

     US light crude benchmark WTI traded at $81.24/barrel earlier Tuesday, a
new record.