www.sunspot.net Associated Press Originally published March 20, 2003

WASHINGTON - Global oil production has been on a rebound for weeks, but little of the increase has reached U.S. shores, the Energy Department said yesterday. The department's statistical agency said U.S. crude oil stocks remain at an uncomfortable 270 million barrels, a level the industry considers a minimum for smooth refinery operation. That's about the same as stocks have been since early January.

At the same time, oil producers, led by Saudi Arabia, have been increasing the amount of oil they're taking from the ground.

That, together with an expectation that war with Iraq might be brief and avoid major damage to oil fields, has sent oil prices tumbling this week. The price of crude dropped again yesterday to $31.05 a barrel on the New York Mercantile Exchange, a decline of nearly $7 from a week ago when it reached a 12-year high of $37.83 a barrel.

Oil traders "are beginning ... to realize there's a bit of a glut of oil around," said Leo Drollas, chief economist of the London-based Center for Global Energy Studies.

Much of that oil is now in storage in the Persian Gulf or in tankers at sea, oil analysts said. Saudi Arabia is believed to have as much as 50 million barrels in storage in the country and more en route to other storage facilities. That's enough to replace Iraq's 1.5 million to 2 million barrels a day for about a month.

But that oil has yet to reach the U.S. markets.

Crude inventories have consistently been 300,000 to 400,000 barrels below a year ago, said Doug MacIntyre, an oil analyst for the Energy Information Administration, the DOE's statistical arm. Imports also have been down from previous levels, although OPEC producers other than Iraq and strife-torn Venezuela have been pumping more oil for weeks.

The low U.S. inventories reflect transportation delays, as well as reluctance by refiners to buy oil when the price has been $35 to $37 a barrel, analysts said.

Larry Goldstein, president of the private Petroleum Industry Research Foundation, said he anticipates that U.S. oil stocks will begin to grow in the coming weeks, adding to a calming of the markets - as long as a war in Iraq does not become messy and threaten Persian Gulf supplies.

"If we can contain whatever negative consequences [from a war] to Iraq, then the Saudis ... have enough flexibility to take care of the loss of Iraqi oil," Goldstein said.

Still, there remains some trepidation among oil traders and analysts should war in Iraq last a while. Crude oil prices are likely to remain volatile in the months to come, they cautioned.

"This thing could go right back up," said Tom Bentz, an analyst at BNP Paribas in New York, suggesting prices could rebound once fighting erupts. "We're still vulnerable because inventories are tight."

The biggest fear in the market is that oil facilities in other Middle Eastern countries, such as Kuwait or Saudi Arabia, could be attacked - a scenario that would cause oil prices to shoot higher very quickly, said Fadel Gheit, senior oil analyst at Fahnestock & Co. in New York.

www.kansas.com Posted on Thu, Mar. 20, 2003
BY DAN PILLER Fort Worth Star-Telegram

As zero hour approached Wednesday for the beginning of the second Gulf War, energy traders worked on the ironic realization that the world suddenly had a glut of oil and that prices are likely to fall.

Futures prices have dropped from a 12-year high of $37.10 a barrel just a week ago to close Wednesday at $29.88 for April delivery, just hours before the expiration of President Bush's ultimatum to Saddam Hussein that would trigger the onset of hostilities in Iraq.

Futures prices tend to run three to four weeks ahead of the pump prices. Whether that declining price holds long enough for motorists to benefit remains to be seen. But traders in New York and London obviously had separated their markets from the war anxieties of the region that holds the world's largest oil reserves.

"The world is beginning to realize that there is a bit of a glut of oil," said Leo Drollas, chief economist for the Center for Global Energy Studies in London.

In recent days some traders have begun to talk of prices dipping back into the low to mid-$20s price range from the $35 a barrel average that has held since Bush began his pressure campaign late last year against Saddam Hussein.

Such a decline would mirror the experience of 12 years ago when Operation Desert Storm was unleashed. Despite fears of disruption of Middle East oil shipments, Americans actually saw fuel prices decline by a third through early 1991 even before their armies stormed to a quick victory in Kuwait.

Today's market predictions of lower prices are based on the continued promises of Organization of Petroleum Exporting Countries producers to cover any losses to Iraqi production and ship to the United States and Western Europe the oil necessary to keep those economies going.

OPEC may have already primed the pump. Reports have surfaced this week of as much as 50 million barrels of oil at sea on tankers, a greater-than-normal volume in the pipeline.

Worldwide daily production now is 77 million barrels. U.S. producers pump about 7 million barrels a day. The United States imports the other 60 percent of the 19.5 million barrels it consumes daily.

OPEC also knows that the U.S. Strategic Petroleum Reserve is brimming with a four-month supply of oil, analysts said. It also has ready access to more than 5 million barrels daily from Canada, Venezuela and Mexico. OPEC can ill afford to blow off the American market as it did with two embargoes in the 1970s.

Since then, the United States created the Strategic Petroleum Reserve embraced more fuel-efficient automobiles and refocused the 60 percent of its daily oil supply that it received from the Middle East to more stable sources in this hemisphere.

washingtontimes.com By Tim Lemke THE WASHINGTON TIMES

 The United States must lessen its dependency on Middle Eastern oil and expand its trade with non-OPEC nations, officials and analysts said yesterday as the nation headed into war with Iraq. 
 Sen. Conrad Burns, Montana Republican and chairman of the Senate Appropriations interior subcommittee, said the United States should turn to Russia, other former Soviet republics and West Africa for oil, and insisted that the country's reliance on oil from "rogue" nations such as Iran and Iraq threatens its security.
 "The attack on [September 11] by Islamic extremists should have been a wake-up call to the nation that our vital security interests are threatened by our increased dependence on Middle East oil imports," Mr. Burns said. "I am sorry to say that our nation still slumbers."
 The price of a barrel of crude oil fell nearly $2 yesterday to $29.88. Prices had been as high as $37 earlier this week, but began tumbling after President Bush said Monday that a war with Iraq was nearly certain.
 Mr. Burns made his comments in a speech at the Heritage Foundation, along with Roger Robinson, an energy consultant and chairman of the William J. Casey Institute, and Ariel Cohen, a research fellow at the Heritage Foundation. 
 The Energy Information Administration estimates that the region around the Caspian Sea <ampersand/>#8212; bounded by Russia, Azerbaijan, Iran, Turkmenistan and Kazakhstan <ampersand/>#8212; contains about 10 billion barrels of oil in proven reserves, and produces about 1.3 million barrels per day.
 Analysts said imports from that region can increase, particularly after the completion of the Baku-Tbilisi-Cehan pipeline that will stretch 1,038 miles from Azerbaijan to a Mediterranean seaport off Turkey. 
 Completion of the pipeline is scheduled for 2005.
 Increasing output from countries outside the Middle East would not only improve U.S. security, but also boost energy flow to populous nations such as China and India, Mr. Robinson said. 
 The panel said political changes in many nations would lead to privatization of oil, and therefore, greater production. 
 Mr. Cohen, who has written extensively on the issue of America's need to diversify its sources of oil, said toppling Saddam Hussein in Iraq will lead to increased energy supplies. 
 "I envision an Iraq with a government that allows for private property, that allows privatization, that allows investment," said Mr. Cohen, who estimated that Iraqi oil output would increase threefold under a democratic regime. 
 Mr. Cohen also said a new government in Venezuela, a member of the Organization of the Petroleum Exporting Countries experiencing political instability, would better serve the United States. The United States gets about 10 percent of its oil from Venezuela.

www.alertnet.org 20 Mar 2003 21:47 (Updates prices, paragraph 4)

NEW YORK, March 20 (Reuters) - World oil prices extended a week-long slump to set new three-month lows on Thursday as the United States launched a widening offensive on Iraq and dealers predicted an easy victory for Washington.

Prices swung wildly during the day on reports, denied by Baghdad, that three or four oil wells were on fire in the south of the country.

OPEC exporters have said they could fill any supply gap resulting from the conflict in the oil-rich Gulf, and that markets were already well supplied. The West's energy watchdog, the International Energy Agency (IEA), said it saw no reason to release emergency stocks.

U.S. crude futures for May delivery fell $1.24 to $28.12, touching its lowest price since mid-December. Benchmark Brent crude oil fell $1.25 to $25.50 per barrel in London, after having touched a three-month low of $25.30.

Oil has shed a quarter of its value in the last week on a massive bet by investment funds that the war will end quickly, without causing major damage to oil installations or supply disruptions.

"The war premium is diminishing on a growing certainty that coalition forces will prevail," said Peter Gignoux, head of the London energy desk at Salomon Smith Barney.

Hours after U.S. cruise missiles hit targets in Baghdad, officials in neighboring Kuwait said oil output was normal, despite two Iraqi missiles hitting the north of the country.

Oil tanker traffic from the Gulf, which provides 40 percent of world oil exports, was also running smoothly, shippers said.

Market assumptions of limited damage to oil installations were challenged by earlier reports that three or four oil wells were on fire in southern Iraq, where half the country's oil is produced.

U.S. Defense Secretary Donald Rumsfeld said he had indications Iraq may have set fire to several wells, but Reuters eyewitnesses said there were no signs of fire at Iraqi oilfields close to the border with Kuwait.

Iraq has around 1,100 wells in total, analysts said.

Iraq suspended oil exports from its southern fields earlier this week, when United Nations inspectors left the country. Limited exports continued on Thursday from a pipeline to the Turkish Mediterranean.

OPEC TO FILL SHORTFALL

The Organisation of the Petroleum Exporting Countries has reassured consumers that it was ready to tap its spare capacity to make up for any shortage from Iraq, but said markets were already well supplied.

"We are not thinking of any increase in production," said OPEC President Abdullah al-Attiyah. "Oil prices are heading downwards. This shows there is more oil in the market than the market can absorb."

Saudi Arabia, the world's biggest exporter, said its oilfields and export terminals were running normally and it was ready to pump more oil to stabilize markets.

Riyadh has already ramped up production well beyond nine million barrels daily, above an OPEC quota of eight million.

The IEA said there was no need for industrialized nations of the West to release emergency stocks as it was confident OPEC could cover the shortfall.

"At the precise hour we speak, I think it is not necessary (to release stocks)," IEA executive director Claude Mandil told Reuters. "We had a very strong statement from OPEC, which has said they will ensure any shortfall and we are confident they will do their best."

The IEA, which oversees some four billion barrels of stocks in 26 industrialized countries, said a release would become necessary only in case of a shortage that could not be covered by OPEC.

It also ruled out any unilateral reserves release by any one member, saying key importers the United States, Japan and South Korea all shared its view that a stock draw was not necessary.

www.tuscaloosanews.com By Steve Reeves Staff Writer March 20, 2003

TUSCALOOSA | Baghdad will fall within two to three weeks, and gas prices will remain stable if the war against Iraq goes well.

Those were the opinions expressed by two University of Alabama professors after the opening shots Wednesday night of the U.S.-led campaign to topple Saddam Hussein.

Donald Snow, a UA political science professor and nationally known military expert, said the first hours and days of the U.S. military campaign will be designed to knock out Iraqi communications and rattle that nation’s will to continue fighting.

“This is exactly the way we started Gulf War I," Snow said.

He said an intense bombardment by U.S. and British warplanes can be expected during the next two to three days, an effort he said is meant to shock the Iraqi army into giving up.

“That probably won’t work," Snow said. “Those guys are going to fight. It’s said the Iraqis don’t fight well, but they fight hard."

Snow predicted that Baghdad would fall within two to three weeks, and that would be when the U.S. military will face its biggest challenge.

“There’s going to be continued resistance after the war," he said. “The Iraqis may treat us as liberators the first couple of weeks. But when they realize we’re not leaving, that’s when it gets dicey."

Snow also predicted much higher casualties than in the first war against Iraq, when 148 U.S. troops lost their lives. He said the urban fighting that will likely result from the invasion means a much higher degree of danger for the troops.

“There will absolutely be higher casualties than the first time around," he said.

Peter Clark, a UA chemical engineering professor, said he doesn’t expect the war to result in higher gas prices.

Clark pointed out that oil prices have gone down the last two days and that Venezuela, a major oil supplier, is gearing up its production capacity.

“As long as there’s not damage to the oil fields, or if they somehow manage to block the shipping lanes, I don’t think much is going to happen," Clark said. “If the war goes as it should, gas prices by the summer should start to drift down."