Opec Suspends Production Quota

March 21, 2003 Posted to the web March 21, 2003 Mike Oduniyi With Agency Report Lagos

The Organisation of Petroleum Exporting Countries (OPEC) has announced the suspension of its production quota to make up for any shortfall arising from the bombardment of Iraq by US forces.

The decision, announced by OPEC President Abdullah al-Attiyah within an hour of the US air strikes on Iraq, meant member-nations, including Nigeria, would now produce oil as much as their capacity could carry.

OPEC, which controls more than 40 percent of the world's crude supply, operates the quota system as a control mechanism to ensure market stability.

Al-Attiyah said in a statement that the decision to suspend production quotas was aimed at maintaining world oil supplies and prices in the event of the disruption to Iraqi crude exports (put at some two million barrels a day) during the US.-led invasion.

"Members have pledged to use...their available excess capacities to ensure continued supply," the statement said.

Consequently, while the war on Iraq lasts, Nigeria, OPEC's sixth largest producer, could be pushing out at least 2.6 million barrels per day (bpd) of crude, compared to its official output quota of 2.018 million bpd for this year.

This represents additional oil output of 582,000 bpd available for Nigeria, and a substantial boost for the 2003 Federal Government budget.

The international market was quick to react to the OPEC decision, as oil prices fell nine percent yesterday to their lowest levels in three months. The market's benchmark crude, the British Brent, which was traded as high as $34.55 per barrel last week, fell to as low as $25.50 per barrel yesterday.

OPEC's own crude basket also lost about $6 a barrel, from $33 per barrel to $27.12 per barrel.

Petroleum product prices also dropped in the international market, as a metric tonne of premium motor spirit (or petrol) fell to $247.75 from $360 per metric tonne last week.

This would come as a respite to the Nigerian National Petroleum Corporation (NNPC), whose fuel import programme had suffered a jolt following the sharp increase in the prices of refined oil, and the consequent scarcity of products in the country.

Analysts said oil prices had not risen as earlier feared on grounds that there would be plenty of oil in supply, as OPEC member-countries would readily put their suppressed spare capacity to full use.

"OPEC producers other than Iraq and strife-torn Venezuela have been increasing production for weeks. Much of that oil is now in storage or in tankers on the high seas," said one oil analyst.

Saudi Arabia on the other hand, 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."

Others said the markets remained calmed because the Bush administration had made clear that it was ready to use some of the 600 million barrels in the Strategic Petroleum Reserve to counter shortages.

Energy experts said a glut could result if war in Iraq did not drag on and Iraqi leader Saddam Hussein did not torch his oil fields.

The biggest fear in the market however, was 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.

Another concern was the on going communal clashes in Nigeria's oil-producing town of Warri, Delta State, which it was feared, might make Nigeria unable to produce at full capacity.

The violent clashes between the Itsekiri and the Ijaw communities, which had left dozens dead, resulted in the loss of a total 156,000 bpd of oil output, six percent of Nigeria's production capacity.

This followed the closure of 10 oil flowstations belonging to Shell (resulting in production shut in of 126,000 bpd) while ChevronTexaco shut three of its swamp flowstations, losing 30,000 bpd of oil.

Oil prices plunge as Iraq fields secured

March 21, 2003, 3:49PM Reuters News Service

NEW YORK - Oil prices deepened a week-long plunge today to hit four-month lows as U.S. and British forces secured key Iraqi oilfields and ports, calming market fears of widespread destruction by Iraqi troops.

A big wave of extra OPEC oil arriving in the West, replacing supply lost from war-torn Iraq, also helped ease the threat of shortages.

U.S. crude plumbed a four-month low of $26.30, ending the day down $1.12 cents at $27.00. Brent crude oil futures in London fell $1.15 to $24.35 per barrel, having also hit a four-month low.

The value of oil has dropped by 30 percent in a week, having peaked at nearly $40 last month.

"The capture of key oil facilities intact is adding to bearish sentiment," said Tony Machacek, a broker at Prudential-Bache International.

British Defense Chief Sir Michael Boyce said all key components of the southern Iraqi oilfields, which normally pump half the country's output, had been secured.

British troops also captured Iraq's Faw peninsula on the Persian Gulf, a strategic oil export route.

"We are trying to make sure that the economic infrastructure of Iraq is left as intact as possible," said Boyce.

Only seven oil wellheads had been torched in the south, less than the 30 previously reported, although oil-filled trenches were also ablaze, he added.

He could not confirm reports that Iraqi President Saddam Hussein may have been killed or injured in the first wave of attacks.

The wellhead fires are a long-term worry for oil markets, but have no immediate impact on supply because Iraq's Gulf exports stopped Monday and this has already been factored into prices, said Leo Drollas of London's Centre for Global Energy Studies.

"Whether Iraqi oil stays in the ground or is burned above ground, it still doesn't get to the market," he said.

Iraq ranked as the world's seventh largest oil exporter before the war.

EXTRA OUTPUT

OPEC exporters, especially Saudi Arabia, have increased output over the past few months, first to cover a strike in Venezuela and then to cool a price spike fueled by war fears.

Imports of oil in the United States are rising despite the cutoff in Iraqi supplies.

"It is the weight of oil, rather than the force of bombs, which is pushing markets lower," Drollas said. "OPEC is now producing more oil than has been lost."

U.S. Energy Secretary Spencer Abraham said OPEC output was now in line with its total level last November despite shortfalls from Iraq, Venezuela and Nigeria.

Western oil companies operating in Nigeria have slashed production and are expected to close a key export terminal this weekend because of political unrest.

Brokers said investors were selling positions built up on futures markets when U.S. crude rallied to a 12-year peak close to $40 in late February.

"The market has now moved from a war premium to a victory discount," said independent oil analyst Simon Games-Thomas.

OPEC ROW

Price hawks in OPEC are already concerned about the slump, which is good news for world economic growth, but hits revenue for the cartel of mostly Middle Eastern countries.

The dive has also revealed deep splits in the 11-member Organization of the Petroleum Exporting Countries.

OPEC Secretary-General Alvaro Silva said Thursday that members have been authorized to use spare output capacity if necessary to make up a shortfall in Iraq supply.

But Iranian Oil Ministry Adviser Hossein Kazempour Ardebili said any output hike would be a "violation" since no decision had been taken to raise OPEC quota limits.

He said extra oil would be a "green light" to the United States to launch an attack on one of OPEC's founding members.

Saudi Arabia, the world's top exporter and a key U.S. ally, is pumping more than 1 million bpd above its quota of 8 million bpd, according independent estimates.

So far Gulf states near Iraq have reported no disruptions to oil production, nor any disturbances to tanker movements in the Gulf, which is the artery for 40 percent of world oil exports.

An oil refinery depot in southwestern Iran close to the border with Iraq was hit by a rocket on Friday, Iranian government sources said. It was not clear where the rocket, which hit the depot in the city of Abadan, had come from.

Iraq's neighbor, Kuwait, said it cut throughput at its refineries as a precautionary move after a near miss by two Iraqi missiles Thursday.

Oil: Is the damage done?

March 21, 2003: 5:05 PM EST By Mark Gongloff, CNN/Money Staff Writer

Pre-war surge ends, and prices aren't likely to rise again, though hurt could already be baked in.

NEW YORK (CNN/Money) - So much for the oil crisis. Contrary to the fears of some experts, the start of a U.S.-led war in Iraq, rather than sending oil prices through the roof, has abruptly punctured a mini-bubble in oil.

That sounds like good news for the struggling U.S. economy, but some analysts worry that enough damage has already been done by the recent spike in oil prices to require some help from the Federal Reserve or Congress later this year.

A barrel of U.S. crude oil for delivery in about a month was going for nearly $38 on the New York Mercantile Exchange on March 12. In the nine days since, the price has plummeted nearly 30 percent, closing at $26.91 in U.S. trading Friday.

Prices rose briefly on Thursday, the first full day of hostilities, when reports of burning oil wells in southern Iraq raised memories of the first Gulf War, when Iraqi troops set fire to more than 700 Kuwaiti oil wells as they retreated from U.S.-led forces.

But prices quickly fell again when traders realized very few oil fields were actually burning -- only about 7, according to the latest report from the British military -- and U.S.-led forces had secured many other fields. [For the latest developments in the war, go to CNN.com.]

And many oil analysts doubt that even a repeat of the Gulf War I oil conflagration would send prices back up near $40, where they peaked briefly this year, capping a jump of about 20 percent since the start of the year.

Only major, unexpected disruptions to supply, such as terrorist attacks on oil fields in Saudi Arabia, could send oil prices back to that level, many analysts believe. As long as the damage is limited to Iraq, the Organization of the Petroleum Exporting Countries (OPEC), the group of nations that supplies about half of all U.S. oil imports, should be able to take up the slack.

"It's clear to us that the overproduction of OPEC members at the moment is more than sufficient to compensate for the loss of Iraqi volumes as they currently stand," UBS Warburg oil analyst Matthew Warburton said.

If for some reason OPEC can't fill the gap, Warburton said, the U.S. Strategic Petroleum Reserve (SPR) and the International Energy Agency, which has its own oil reserve for use by a group of 26 Western nations, could easily open their spigots and keep oil flowing.

At the moment, however, the IEA has said it sees no need to release any oil, and the U.S. government seems highly unlikely to tap the approximately 600 million barrels of oil in the SPR.

"World energy supplies are more than adequate to compensate for any disruption," Energy Secretary Spencer Abraham told the Senate Armed Services Committee Thursday. "The response by OPEC and major producers like Saudi Arabia, and if needed, our large strategic stockpiles, will ensure that our economy will have the ample supply of energy it needs." Inventories keep floor under prices

But it also seems unlikely that oil will drop back below $20 a barrel, where prices stood in early 2002, before talk about regime change in Baghdad began in earnest.

Tight world and U.S. inventories of oil and gasoline, the result of an unusually cold winter in parts of the United States, and the long strike in Venezuela, the world's fifth-largest oil producer, should keep a floor under prices, most analysts say. Related stories Bombs fall, stocks rise Tech to play big role in Iraq The 'CNN effect' and you Fed can't figure economy out Crying over crude Sitting on black gold

"The U.S. inventory situation remains extremely tight, with total inventories still falling and gaining no ground on the five-year average," J.P. Morgan oil analyst Paul Horsnell said in a research report Wednesday.

Though OPEC is publicly fretting that prices will keep falling, Horsnell and other analysts suspect prices have actually found their floor and will continue to trade between $25 and $30 a barrel for some time.

And prices may yet move somewhat higher even absent disasters in Saudi Arabia. For one thing, if the latest price drop is driven by a belief among commodity traders that Iraqi oil will be flowing freely soon, the disappointment if that doesn't happen could boost prices.

"The market seems to have pushed far too far, far too fast and on the basis of far too little hard information," Horsnell said in the note. How much economic damage has been done?

High oil and gasoline prices are of great concern to economists, since they weaken consumers' ability to spend on other things and raise costs for businesses. All the big oil spikes in the past 25 years or so have resulted in recessions, and some economists have worried that the recent spike could result in another one.

The recent drop in prices, then, should be something of a relief. But the spike already may have contributed to a dramatic slowdown in growth early this year, helping to drive consumer confidence to lows not seen in about a decade.

"If everything happens just like it did 12 years ago, [oil prices] would continue on a quite rapid decreasing trend, and the worst would be behind us," said BNP Paribas U.S. economist Alexandra Estriot. "However, even if it develops in this positive way, there will be a cost."

Federal Reserve policy-makers decided earlier this week to hold short-term interest rates steady and said they couldn't be sure how much of the recent weakness in the economy will disappear after the war ends.

If longer-term damage has been done by war fears, by the spike up in oil prices, or by more substantive underlying problems, the Fed might have to step in and cut rates further sometime later this year. Congress is also debating tax cuts and spending measures that could be enacted in an effort to help the economy.  

<a href=usinfo.state.gov>News from the Washington File 21 March 2003

(Steady supply supported by latest data) (290)

World oil supply is "consistent and steady" despite lost production from Iraq and elsewhere, U.S. Energy Secretary Spencer Abraham says.

In a March 21 statement Abraham said that data from his department's research office confirm that Organization of the Petroleum Exporting Countries production is only "slightly" lower now than in November 2002.

The Energy Information Administration (EIA) started March 20 producing daily updates of the world energy situation. The report, called the Energy Situation Analysis Report (ESAR), includes information on the latest world oil market developments, oil production and infrastructure issues, the U.S. petroleum situation, and relevant special topics.

The updated ESAR is available on the EIA Web site at: www.eia.doe.gov.

Following is the text of Abraham's statement:

(begin text)

U.S. Department of Energy March 21, 2003

U.S. Secretary of Energy Spencer Abraham Notes EIA Data Confirms Steady World Oil Production

WASHINGTON, DC -- Following is a statement by Secretary of Energy Spencer Abraham:

"We continue to closely monitor the world oil supply situation. Today, the Department is releasing oil production figures from the Energy Information Administration (EIA) which confirm that world oil production is consistent and steady.

"EIA data today reports that OPEC production as of March 20, 2003 was 26.5 million barrels per day, only slightly lower than the November 2002 figure of 26.9 million barrels per day -- this despite losing all production from Iraq and also incurring other production losses from Venezuela and Nigeria.

"Working with International Energy Agency partners, we continue to monitor global oil market conditions. We appreciate the continued commitment by oil producing countries to ensure stability in the world oil markets."

(end text)

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)

This site is produced and maintained by the U.S. Department of State's Office of International Information Programs (usinfo.state.gov). Links to other Internet sites should not be construed as an endorsement of the views contained therein.

New Nigerian violence closes key ChevronTexaco terminal

11:20 AM PST Friday 

ChevronTexaco Corp. is closing its 340,000 barrel-per-day Escravos terminal in Nigeria near the oil city of Warri after the country's military ordered the area evacuated in the wake of escalating violence that reportedly left at least 10 soldiers and scores of civilians dead.

A ChevronTexaco contract worker was killed earlier in the week.

Impending shutdown of the Escravos terminal raised growing fears of world oil shortages even as some 1.8 million barrels-per-day of Middle Eastern production was scuttled because of the U.S.-led war on Iraq. Venezuela, the U.S.'s fourth-largest supplier and the world's fifth-largest exporter, has yet to return to full production after an oilworkers' strike earlier this year.

Saudi Arabia is the U.S.'s largest source of foreign crude, followed by Canada, Mexico, Venezuela and Nigeria. Venezuela and Nigeria are members of OPEC, whose other members are said by industry analysts to lack sufficient surplus capacity to offset production losses from those nations and the Middle East.

San Ramon-based ChevronTexaco, Nigeria's third-largest foreign-equity producer, also declared force majeure on exports from Escravos, notifying purchasers that it may not be able to deliver March and April shipments. Oil traders said as many as 14 shipments scheduled for March and April could be affected.

Royal Dutch/Shell Group, which accounts for more than half of Nigeria's 2-million-bpd production, also was likely to declare force majeure, according to international media reports and the state-owned Nigerian National Petroleum Corp.

The Escravos terminal, which serves the oil-rich Niger delta fields in southern Nigeria, ships more than 13 percent of the oil that accounts for 95 percent of export income in Africa's most populous nation. Oil exports are the foundation of Nigeria's economy. ChevronTexaco and Shell have reported losses of 266,000 bpd since escalating violence between Ijaw and Itsekiri tribal fighters resulted in the Nigerian army ordering the area evacuated. In addition to tribal animosities, both groups are seeking greater concessions from foreign oil companies against the backdrop of national elections next month in which President Olusegun Obasanjo is seeking a second term. Some observers have described the violence nationwide as the worst since the Biafran civil war of the 1960s.

The Nigerian and Venezuelan cutbacks haven't had a direct effect on the East Bay's five refineries, whose major crude sources are Alaska and California's Central Valley fields. But they have helped drive up worldwide crude prices, which have led to soaring retail prices in the United States and the Bay Area, which now has the nation's highest pump rates for gasoline and diesel.