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EIA Predicts 'Fairly Loose Oil Market' over Next 2 Years

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NEW YORK (Dow Jones Newswires), Jan. 13, 2009

The U.S. on Tuesday forecast that crude oil markets will stay "fairly loose" over the next two years, noting that OPEC will have difficulty implementing pledged crude output cuts.

"The second Organization of Petroleum Exporting Countries agreement for substantial production cuts has failed, thus far, to support substantially higher prices," the Energy Information Administration, a wing of the U.S. Energy Department, said in a monthly forecast. "The outlook for supply and demand fundamentals indicates a fairly loose oil market balance over the next two years."

The Short-Term Energy Outlook issued Tuesday by the EIA is the first to include monthly forecasts through December 2010.

In announcing two output cuts, OPEC has tried to shore up oil prices by agreeing to curtail output by a total of 4.2 million barrels a day from its September 2008 production level of 31.4 million barrels a day, but oil futures prices have continued their plunge, although they have stabilized somewhat since the beginning of the year. Oil futures, which recently traded around $38 a barrel, are down more than 70% from all-time highs.

Saudi Arabia, the world's No. 1 crude oil exporter and key OPEC member, is currently producing 8 million barrels a day and will slash February production below the target mandated by the OPEC cuts, the country's oil minister said earlier Tuesday.

"We are working very hard to bring markets in balance," Ali Naimi said. "We will do whatever it takes to bring them back in balance."

Market participants aren't convinced that OPEC will cut enough to boost prices, the EIA said.

"Adherence to the announced cuts will be challenging, as several individual countries are motivated to maintain production at higher levels to generate revenue needed to finance their government programs amid falling prices," the EIA said.  

Copyright (c) 2008 Dow Jones & Company, Inc.

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