London (Platts)--18Nov2008

Oil prices will continue to slide until OPEC makes real cuts in crude
output or high-cost non-OPEC production is shut in, the Centre for Global
Energy Studies said Tuesday.

The London-based CGES, a think-tank founded by former Saudi oil minister
Ahmed Zaki Yamani, said OPEC's October 24 agreement to cut production by 1.5
million b/d had so far failed to halt the price slide "and will not do so
until real output cuts have been implemented."

Oil demand forecasts continue to be revised downwards, with a
year-on-year contraction in global oil demand this year and next "now a very
real possibility for the first time for 25 years," it said.

"The path of oil prices will depend on how, and how quickly, OPEC cuts
production in response to the falling demand for its oil," it said.

Some OPEC ministers and senior officials have said the group may agree a
further cut at emergency talks in Cairo on November 29, but the CGES said in
its Monthly Oil Report that there was "little point in pledging new output
cuts until those already agreed are implemented."

The CGES said its demand forecasts were more pessimistic than those of
the International Energy Agency, which last week slashed its projections of
world oil demand growth both this year and next. The CGES believes global oil
demand will actually fall in both 2008 and 2009, with oil demand growth in
Asia, Latin America and the Middle East no longer able to offset the
continuing decline in OECD countries.

LOSS OF CONFIDENCE

It said the loss of confidence that had accompanied the financial crisis
and worsening economic outlook meant that even an easing of oil prices would
not halt the demand decline. "With people fearful for their jobs and income
prospects, a 25-30% fall in gasoline prices will not change their new driving
habits," the CGES said.

The CGES reference scenario sees OPEC cutting output by 440,000 b/d in
the fourth quarter of this year and, as a result, the price of Dated or
physical Brent crude averaging $57/barrel over the quarter."

In the first quarter of next year, "as prices continue to fall, we see
OPEC cut more firmly...by more than 1 million b/d," it said.

"However, reduced global demand for oil means the price continues to fall
in spite of this, averaging $39/b for the quarter," it said.

The CGES sees OPEC cutting again in the second quarter, this time by a
further 470,000 b/d, after which the price begins to strengthen and rises to
$46/b. In the third quarter, "with OPEC production flat, the price reaches
$53/b even as global demand for oil slips."

However, if OPEC agrees a new cut at its emergency meeting in Cairo at
the end of this month and reduces actual output by 710,000 b/d in the fourth
quarter, the price would average $62/b for the quarter.

"A further cut of 1.35 million b/d in [the first quarter of 2009] would
draw a line under the falling price of oil, holding it at $46/b," the CGES
said.

In this scenario, Dated Brent averages $56/b in the second quarter, "with
the price firming even as OPEC increases production [by 230,000 b/d] and
global demand for oil slips," the CGES said. "The price of oil continues to
rise in the second half of the year, reaching $68/bbl in [the third quarter],
again in spite of the falling global demand for oil and another modest
increase in OPEC's production" of 130,000 b/d, "stockcover falling as
the price rebounds." For the year as a whole, under this second scenario,
Dated Brent averages $61/bl in 2009, $12/b higher than in the reference case.

The CGES said its pessimism about oil demand was offset to some extent by
its even more pessimistic view of non-OPEC supply, which it believes is
unlikely to show any real growth either this year or next.

"OPEC's call for support from Russia, Mexico and Norway in cutting
production is already being delivered, albeit involuntarily, with production
falling year on year in all three countries," it said. "If prices fall far
enough, it may be difficult to cover the operating costs of the most expensive
non-OPEC production, Canada's oil sands."