U.S. oil giants back away from Iraqi crude

www.forbes.com Reuters, 03.06.03, 5:36 PM ET By Bernie Woodall

NEW YORK, March 6 (Reuters) - The biggest U.S. oil companies have backed away from buying Iraqi crude as looming war in the country makes purchases too much of a risk, government figures show.

The threat of a public backlash at firms buying Iraqi oil and concern that Iraqi supplies might be cut off by war are too great, analysts said.

ChevronTexaco (nyse: CVX - news - people), the biggest buyer of Iraqi crude in late 2002, has stopped taking shipments from Iraq as the Bush Administration closes in on war, a spokesman said.

"We've developed economic alternatives," said ChevronTexaco spokesman Chris Gidez. "This is a prudent, business-driven decision."

The top previous U.S. buyers of Iraq crude oil -- Exxon Mobil (nyse: XOM - news - people), Valero (nyse: XOM - news - people), privately held Koch and ChevronTexaco (nyse: XOM - news - people) -- have ceased or greatly slowed their purchases of Iraqi oil, the U.S. Department of Energy says.

"It's mom and apple pie here. Consumers are looking at the source of oil and people are very unhappy about doing business with companies that are buying from Iraq right now," said oil analyst Peter Beutel of Cameron Hanover of Connecticut.

While U.S. refiners take most of Iraq's exports, no U.S. companies purchase Iraqi crude directly from Baghdad. Rather, middleman trading firms usually buy Iraq's crude from Baghdad under U.N. supervision and then resell it to U.S. refiners.

According to European shipping sources, the last cargo of Iraqi crude that was sold to ChevronTexaco, was shipped in late January,

Exxon Mobil purchased 89,000 barrels per day (bpd) of Iraqi crude oil through the whole of 2001, but none at all in November and December, the latest U.S. government figures show.

Valero (nyse: VLO - news - people), one of the biggest U.S. refiners, has cut back from 152,000 bpd throughout 2001 to 49,000 bpd in the fourth quarter, the figures show. Koch which took 84,000 bpd over the year, took none in the fourth quarter. The companies declined comment.

FOREIGN FIRMS STILL BUYING

While Iraqi crude is still coming into the United States, it is foreign-owned oil companies such as France's TotalFinaElf <TOTF.PA> and Venezuela's U.S. affiliate Citgo that are bringing the oil into the country, according to government figures.

In the first two months of this year Iraq shipped just over 1 million barrels a day to the United States -- some 67 percent of the Iraqi crude sold officially in the U.N.-administered oil-for-food program, industry sources said.

Iraq has since December 1996 sold crude oil through the U.N. "oil-for-food" program, an exception to 1990-91 Gulf War sanctions that allows Iraq to export oil and use the revenue to buy food and humanitarian goods for its citizens.

ChevronTexaco usually likes to buy Iraq's sour crude for its refineries in California and Louisiana because its specifications closely match the needs of those refineries.

Iraq has a sustainable export rate of about 2.2 million barrels daily. But exports have lagged since late 2001 as an illegal surcharge outside the U.N. program that the Iraqi government demanded from its oil customers discouraged international firms from buying Iraqi oil.

INSECURE SUPPLY

After Baghdad dropped the surcharge last September, some U.S. companies, such as ChevronTexaco, initially stepped up purchases of Iraqi crude.

But the threat of imminent war as the Bush administration resolves to disarm Iraq using military force if necessary has made Iraqi crude too risky.

"It's the uncertainty. Companies are worried about the supply. They want to be sure they can lift and they can't be sure going into a war," said analyst Raad Alkadiri of The Petroleum Finance Co. in Washington.

Iraqi exports are widely expected to halt in the event of military action in Iraq and oil traders are wary of hefty cancellation charges that tanker owners impose to compensate losses if loadings cease

Many refiners -- now making their best profits in years as gasoline and heating oil prices rise -- are also nervous about relying too heavily on Iraqi oil.

"If you're loading early next week there's a good chance the oil will be there, but then you run the risk of waiting too long to try to sell," said one trader.

While ChevronTexaco has stopped buying Iraq's oil globally, Exxon Mobil continues to purchase Iraqi crude oil as long as it does not go to the United States, industry traders said.