www.theage.com.au March 22 2003

Oil will always be at centre stage of any conflict in the Middle East, given the West's dependence on it. Barry FitzGerald and Richard Salmons report.

The slogan "No blood for oil" was scrawled in chalk on the pavement outside the Stock Exchange building well before the first missile attacks on Iraq.

Although it reflected the views of ardent anti-war campaigners, many of John Howard's "ordinary" Australians also have a suspicion that the war is really about oil and not an attack to take out a despot in control of weapons of mass destruction.

The conspiracy theorists take things further. Control of Iraq is the first step in a plan by the oil-hungry US to break open the Middle East's stranglehold on the world's biggest oil reserves.

Saudi Arabia will be next, not with bombs but through a US-inspired toppling of the ruling elite.

The result will be the dawn of a golden economic era, one underpinned by abundant and therefore cheap Middle-East oil produced by the US oil majors that also happen to be big supporters of their Texan president.

So the conpiracy theorists would have you believe. It does not matter that cheap oil would destroy the US oil majors or that the cost of the war, variously estimated at $US22 billion ($A37 billion) to $US140 billion, buys a lot of oil any day of the week.

Whether there is any truth to the claims and suspicions about the real reasons for the war will be debated for years to come. Right or wrong, they will not go away, even if Britain's idea of handing control of the Iraqi oilfields to the United Nations once victory by the "coalition of the willing" is secured sees the light of day.

What is known with certainty is that war in Iraq, or anywhere else in the Middle East for that matter, necessarily has oil at, or near, centre stage.

Iraq is, after all, a major, albeit frayed, oil producer and, more importantly in the long run, the owner of the world's second-biggest reserves. It had been producing 2.4 million barrels of oil daily under United Nations supervision since the oil-for-food sanctions came into effect in 1999.

Because of its huge undeveloped reserves Iraq could produce a lot more. But it has not had the capacity to invest in additional production and, technically at least, it remains part of the Organisation of Petroleum Exporting Countries.

OPEC's quota system on production by member countries is aimed at keeping the oil price as high possible without affecting demand. The target is a price between $US25 and $US28 a barrel.

The member countries, whose economies all depend heavily on oil, control two-thirds of the world's reserves, but they produce only one-third of the 78 million barrels of oil that the world gobbles up daily. In effect, the non-OPEC world produces all it can and buys the rest from OPEC.

But OPEC is the producer that can make a difference to the global oil price by adjusting its quotas. That also makes it the producer that can deliver the non-OPEC world a nasty shock every now and then.

Before a shot was fired in the war, Australians got a lesson on the interplay between war in Iraq and what it means for oil prices.

The lesson came at the petrol pump in the form of record prices of more than $1 a litre.

Yet even as petrol stations marked up their boards, analysts were predicting a flood of oil onto the market, as well as a big drop in demand that would ease pressure on prices.

It's early days in the war but the predictions are looking good. Oil prices have crashed from just under $US40 a barrel to $US28 a barrel. The global markets drove up the price on the fear of war and supply disruptions, and they have now taken it down on expectations of the war being short.

That wild swing in attitude highlights the precarious nature of the oil market. Despite being a fuel vital to Western countries, oil is still hugely volatile.

At present, the volatility is to the downside on price. Analysts believe that the start of the war could unlock vast supplies of the resource.

"The consensus is that there will be a correction back downwards but it depends on what kind of inventory comes back on line," said Salomon Smith Barney analyst Gordon Ramsay.

"Stockpiles and reserves will come onto the market, and that will limit the uncertainty. The question is, what do countries have in commercial reserves that have been hidden from official statistics."

Indeed, the oil markets have so far shrugged off concerns of big or long-lasting disruptions. In electronic trading on the New York Mercantile Exchange yesterday afternoon (eastern Australian local time), oil was trading at $US28.30 a barrel, close to a three-month low.

The price was 21 per cent down for the week leading up to the start of the war, again reflecting the belief that a war in Iraq would be quick and that there would be little damage to oilfields and facilities.

The question in the minds of analysts, though, is how much other factors - including additional production, the release of reserves, and falling seasonal demand in the West - will offset a cut in supply from Iraq and squeezes in other OPEC countries such as Venezuela and Nigeria.

Until the commencement of hostilities, Iraq was exporting at a rate of about 1.5 million barrels a day. Saudi Arabia's stockpile could make up for about a month's disruption of those exports, although Saudi officials have said the country does not plan to draw down all 50 million barrels. But Saudi Arabia is now producing about 9 million barrels a day, or about 1.5 million more than its OPEC quota. The country has about 1.5 million barrels of additional production capacity that it can bring on in a few weeks, if the need arises.

The US Government has a strategic reserve of 600 million barrels but has said it wants to rely on OPEC to fill any gap.

In addition, Ramsay noted that Venezuela, which had been the scene of a bitter oil industry strike, was increasing production again. He said output, of 1.6 million barrels a day in January, had reached 2 million by the end of February. Adding further comfort, the arrival of spring and summer in the Northern Hemisphere could reduce demand for oil by as much as 2.7 million barrels a day. In total, private and public oil stocks counted under the auspices of the International Energy Agency officially amount to more than 90 days of imports by Western countries.

Such figures seem to provide a sizeable cushion for any loss of Iraqi supply, but analysts say it will take time for new supplies to arrive, and the conflict comes at a time when Western reserves are at a record low.

Analysts are focused on industry crude oil stocks, which include oil held in refineries, petrol stations and in the supply chain. Such stocks total just 270 million barrels in the US.

www.sunspot.net The Associated Press Originally published March 21, 2003

PARIS -- The International Energy Agency said Friday it sees no reason to release emergency crude oil stocks despite the situation in Iraq and civil unrest in Nigeria.

"There is no event in Iraq that makes us fear about a disruption in oil supply," IEA spokesman Pierre Lefevre said, noting that the output concerned in Nigeria was not significant in terms of volume.

Thursday, soon after the U.S.-led troops launched an invasion of Iraq, the Paris-based energy watchdog said increased production from OPEC kingpin Saudi Arabia and key member Venezuela, combined with lower demand for heating oil in the United States, helped to reinforce confidence that demand would be met.

The IEA has said it will allow the Organization of Petroleum Exporting Countries to have first crack at supplying customers before the IEA takes a decision to release stocks. OPEC has pledged to keep markets well supplied.

Iraq's oil exports through the United Nations' oil for food program, normally around 1.7 million barrels a day, are now virtually at a standstill following the withdrawal of U.N. staff from Iraq on Tuesday.

To date, ethnic clashes in the oil-rich Niger delta in Nigeria have disrupted over 250,000 barrels a day of the OPEC member's 2 million barrels a day output.

Oil price slides despite burning Iraqi wells

www.swissinfo.org March 21, 2003 2:00 PM  By Tom Ashby LONDON (Reuters) - Oil prices have resumed a week-long plunge, bringing the seven-day loss to more than 25 percent, as traders wake up to a glut of OPEC oil arriving in the West as exports dry up from war-torn Iraq. Britain said up to 30 oil wells in southern Iraq had been set alight, but Defense Minister Geoff Hoon said fears that hundreds of wells would be torched have not yet been realised. The fires are a long-term worry for oil markets, but have no immediate impact on supply because Iraq's Gulf exports stopped on Monday and this is already factored into prices, analysts said. "It is the weight of oil, rather than the force of bombs, which is pushing markets lower," said Leo Drollas of London's Centre for Global Energy Studies. "OPEC is now producing more oil than has been lost." Benchmark Brent crude oil fell 42 cents to $25.08 per barrel by mid-morning in London, having touched a three-month low of $24.80. U.S. crude futures also plumbed fresh three-month lows, down 43 cents to $27.69. Oil has lost 26-27 percent of its value in a week. OPEC exporters, especially U.S. ally Saudi Arabia, have hiked output dramatically over the past few months, first to cover a strike in Venezuela and then to cool a price spike since December fuelled by war fears. Drollas said OPEC was now pumping 300,000 barrels per day more oil than it was in November, when Venezuela and Iraq were both pumping at full capacity. "Burning Iraqi oilwells is a longer-term issue for oil markets, but it is neither here nor there for supply now because exports have stopped anyway and this has been factored into prices," he said. SELLOFF Brokers said investors were selling positions built up on futures markets when crude rallied to a 12-year peak close to $40 in late February on anticipation of a war in Iraq. "As the military assault unfolds it will start to determine the final price outcome. The market has now moved from a war premium to a victory discount," said Sydney-based independent oil analyst Simon Games-Thomas. Price hawks in OPEC are already voicing concern about the slump, which is good news for world economic growth but hits revenue for the cartel of mostly Middle Eastern countries. It has also revealed deep splits in the organisation over the war with Iraq. OPEC Secretary-General Alvaro Silva said on Thursday that members have been authorised to use their spare capacity to make up for the shortage of Iraq supply. Iranian Oil Ministry Adviser Hossein Kazempour Ardebili said on Friday any increase in output would be a "violation" since no decision had been taken to raise OPEC quota limits. "The OPEC general-secretary is not authorised to say this and it is OPEC that could decide about it and none of the OPEC ministers approved it," Kazempour told state television. "It is giving a green light to America to launch an attack and none of the OPEC members wants to give a green light to attack another OPEC member," he said. OPEC President Abdullah al-Attiyah said on Thursday the exporter group saw no need to pump more oil into a saturated market. SEIZING OILFIELDS Despite the oil well fires, a British military spokesman said U.S. forces should seize much of Iraq's Rumaila oilfields intact. A Reuters correspondent travelling with the 1st Marine Regiment in southern Iraq reported fires there. The oilfields in southern Iraq, of which Rumaila is the largest with 400 oil wells, pump about half of the country's 2.5 million barrels of daily production. Iraqi Oil Minister Amir Muhammed Rasheed has denied the reports. British troops secured a position on the Faw peninsula on the Gulf, which is a strategic oil export route which connects to Mina al-Bakr and Khor-al-Amaya. Analysts warned that with the U.S. invasion to topple Saddam in the early stages, there remained plenty of opportunity for prices to spike higher again. So far other Gulf producers have reported no disruptions to oil production, nor any disturbances to tanker movements.

sg.biz.yahoo.com Friday March 21, 7:59 PM

PARIS (Dow Jones)--The International Energy Agency, the energy watchdog of the world's richest nations, said Friday it sees no reason to release emergency crude oil stocks, despite the situation in Iraq and civil unrest in Nigeria.

"There is no event in Iraq that makes us fear about a disruption in oil supply," IEA spokesman Pierre Lefevre said, noting that the outage in Nigeria wasn't significant in terms of volume.

Thursday, soon after the U.S.-allied troops launched an invasion of Iraq, the IEA said increased production from OPEC kingpin Saudi Arabia and key member Venezuela, combined with lower demand for heating oil in the U.S., helped to reinforce confidence demand would be met.

The IEA has said they will allow the Organization of Petroleum Exporting Countries, which has pledged to keep markets well supplied if there is any shortfall, to have first crack at supplying customers before the IEA takes a decision to release stocks.

Iraq's oil exports through the U.N. oil-for-food program, normally around 1.7 million b/d, are now virtually at a standstill following the withdrawal of U.N. staff from Iraq Tuesday.

To date ethnic clashes in the oil-rich Niger delta in Nigeria have disrupted over 250,000 b/d of the OPEC member's 2 million b/d output.

-By David Gauthier-Villars, Dow Jones Newswires; 33 (0)1 40 1717 40, david.gauthier-villars@dowjones.com

Brave new world of oil rising

Visit www.smh.com.au for the most up-to-date news March 22 2003

The war will have a profound impact on global oil levels. Barry FitzGerald and Richard Salmons report.

The slogan "No blood for oil" was scrawled in chalk on the pavement outside the Stock Exchange building well ahead of the first missile attacks on Iraq.

While it reflected the views of ardent anti-war campaigners, many of John Howard's "ordinary" Australians also have a suspicion that the war is really about oil and not an attack to take out a despot in control of weapons of mass destruction.

The conspiracy theorists take things further.

Control of Iraq is the first step in a plan by the oil-hungry US to break open the Middle East's stranglehold on the world's biggest oil reserves.

Saudi Arabia will be next, not with bombs but by a US-inspired toppling of the ruling elite.

The end result will be the dawn of a golden economic era, one underpinned by abundant and therefore cheap Middle East oil produced by the US oil majors which also happen to be big supporters of their Texan president.

So they would have you believe.

It does not matter that cheap oil would destroy the US oil majors or that the cost of the war, variously estimated at $US22 billion to $US140 billion ($37 billion to $236 billion), buys a lot of oil, any day of the week.

Whether or not there is any truth in the claims and suspicions about the real reasons for the war will be debated for years to come.

Right or wrong, they will not go away, even if Britain's idea of handing control of the Iraqi oilfields to the United Nations once victory by the "coalition of the willing" is secured sees the light of day.

What is known with certainty is that war in Iraq, or anywhere else in the Middle East for that matter, necessarily has oil at, or near, centre stage.

Iraq is after all a major, albeit frayed, oil producer and, more importantly in the long run, the owner of the world's second biggest reserves.

It had been producing oil at a daily rate of 2.4 million barrels under the supervision of United Nations under the oil-for-food sanctions that came into effect in 1999.

Because of its huge undeveloped reserves Iraq could produce a lot more. But it has not had the capacity to invest in additional production and technically at least, it remains part of OPEC.

OPEC's quota system on production by its member countries has the aim of keeping the oil price as high possible without hurting demand, with a price of $US25 to $US28 a barrel the target.

So while its member countries, whose economies all depend heavily on oil, control two-thirds of the world's reserves, they produce only one- third of the 78 million barrels of oil that the world gobbles up daily. In effect the non-OPEC world produces everything it can and buys the rest from OPEC.

But OPEC is the swing producer in the system. It is the producer that can make a difference to the global oil price by adjusting its quotas. That also makes it the producer that can deliver the non-OPEC world a nasty shock every now and then.

Before even a shot was fired in the war, Australians got a lesson on the interplay between war in Iraq and what it meant for oil prices. The lesson was given at the petrol pump in the form of record prices of more than $1 a litre.

Yet even as petrol stations marked up their boards, analysts were predicting a flood of oil onto the market, as well as a significant drop in demand that would help ease any pressure on prices. It's early days in the war but the predictions are looking good. Oil prices have crashed from just under $US40 a barrel to $US28 a barrel.

While the global markets ran up the price on the fear of war and supply disruptions, they are also took it down on expectations of the war being short and precise.

That wild swing in attitude and pricing served to highlight the precarious nature of the oil market. Despite being a fuel vital to the lifestyle of western countries, oil is still vulnerable to huge volatility.

At present, the volatility is to the downside on price. Analysts believe that the commencement of war could unlock vast supplies of the resource.

"The general consensus view is that there will be a correction back downward, but it depends on what kind of inventory comes back on line," said Salomon Smith Barney analyst Gordon Ramsay. "There will be stockpiles and reserves that will come on to the market, and that will limit the uncertainty," he said.

"The question is, what do countries have in commercial reserves that have been hidden from official statistics?"

Indeed, the oil markets have so far shrugged off concerns that any disruptions could be substantial or last long. In electronic trading on the New York Mercantile Exchange yesterday afternoon (eastern Australian local time), oil was trading at $US28.30 a barrel, close to a three-month low.

The price was some 21 per cent down for the week leading up to the start of the war, again reflecting the belief that a war in Iraq will be quick and that there will be little damage to its oilfields and facilities.

The question in the minds of analysts, though, is how much other factors - including additional production, the release of reserves, and falling seasonal demand in the West - will offset the combination of a cut in supply from Iraq and squeezes elsewhere in other OPEC countries, such as Venezuela and Nigeria.

Up until the commencement of hostilities, Iraq has been exporting but at a reduced rate of about 1.5 million barrels a day. This is balanced by a Saudi Arabian stockpile that could make up for about a month's disruption of those exports, although Saudi officials have said the country does not plan to draw down all 50 million barrels.

But Saudi Arabia is now producing about 9 million barrels a day, or about 1.5 million more than its OPEC quota. The country has about 1.5 million barrels of additional production capacity that it can bring on in less than several weeks, if the need arises.

The US also controls a Strategic Petroleum Reserve of 600 million barrels, but it has said it wants to rely on OPEC production to fill any gap.

In addition, Ramsay noted that Venezuela, which has been the scene of a bitter oil industry strike, is increasing production again. He said output that was 1.6 million barrels a day in January had reached 2 million by the end of February.

Adding further comfort, the arrival of spring and summer in the Northern Hemisphere could reduce demand for oil by as much as 2.7 million barrels a day. In total, private and public oil stocks counted under the auspices of the International Energy Agency officially amount to more than 90 days of imports by Western countries.

While such figures appear to provide a sizeable cushion for any loss of Iraqi supplies, analysts point out that it will take time for new supplies to arrive, and that the conflict comes at a time when overall Western reserves are at a record low.

Analysts are focused on industry crude oil stocks, which includes oil held in refineries, petrol stations and throughout the supply chain. Such stocks total just 270 million barrels in the US, close to the minimum required for smooth refinery operation.

Visit www.smh.com.au for the most up-to-date news