OPEC pledge reassures oil markets

www.upi.com By Hil Anderson UPI Chief Energy Correspondent From the National Desk Published 3/11/2003 7:29 PM

LOS ANGELES, March 11 (UPI) -- Crude futures settled 55 cents lower on the New York Mercantile Exchange Tuesday after OPEC announced it would keep the world supplied with oil should "geopolitical tensions" deteriorate further.

While not mentioning its fellow OPEC member Iraq by name, the cartel repeated its pledge that it would be able to continue production and the flow of supplies to its customers at the conclusion of its latest conference meeting in Vienna.

"In addition, noting the uncertainties stemming from increasing geopolitical tensions and while expressing its hope that peace and tranquility will prevail, the conference reiterated OPEC's determination to ensure that the market remains stable and well-supplied," OPEC said in a statement. "The organization (has) repeatedly demonstrated its ability and willingness to continue to satisfy oil market demands in a timely fashion."

OPEC refused to withhold oil from the West in a show of support for the increasingly beleaguered Iraqi government. It also refused to increase exports from its current level of 24.5 million barrels per day to help cool off oil prices that have helped send gasoline prices in the United States to near-record levels.

The news from Vienna and reports that the Bush administration might be willing to extend the proposed March 17 deadline for Iraqi disarmament combined to cool off the bullishness on NYMEX, where April crude settled at $36.72 per barrel while May settled at $35.74. Early after-hours trading Tuesday evening saw crude as largely stable.

A chronic tightness in the U.S. crude and gasoline supply has combined to push the average price of a gallon of regular in the United States to $1.702, according to AAA, whispering distance from the May 2001 record of $1.718.

"Motorists also should resist the urge to immediately buy gas following a possible declaration of war on Iraq or the commission of a terrorist act, because 'panic buying' and long gas lines have the potential of causing needless fuel shortages," AAA spokeswoman Dawn Duffy suggested.

OPEC's statement maintained, however, that there was no physical shortage of oil on the market and the recent run-up in prices was primarily the result of oil trader worries over the Iraq situation, cold weather in the United States and the continuing labor dispute that has bogged down Venezuela's state-run oil industry.

"The current high price levels ... are predominantly a reflection of uncertainties resulting from prevailing geopolitical tensions," OPEC said. "In light of the supply-demand picture for the balance of the first quarter and the second quarter, the conference decided to maintain, for the time being, the current OPEC production ceiling. Supplies are adequate to meet current market requirements."

OPEC's ability to keep its pledge depends a good deal on whether the war spills over into Kuwait, Saudi Arabia and other Gulf nations.

The Washington Times said Tuesday that al Qaida might be forming terrorist squads to attack Kuwaiti and Saudi oilfields in the event of war.

Tina Vital, an analyst with Standard & Poor's, predicted that OPEC would increase its production in the event of war -- just in case, and warned that "if a conflict in the Middle East spills over into Kuwait, we believe OPEC may not be able to cover the shortfall, raising the prospect of additional hikes in oil prices." -0- Meanwhile, in a related energy development, the U.S. Department of the Interior added some new fuel to the debate over expanded oil drilling in Alaska on Tuesday.

Interior Secretary Gale Norton announced that an extensive survey of the caribou herds on Alaska's North Slope found that the fragile animals' numbers were on the increase, rising from 27,128 in 2000 to 31,857 as of last summer. In the 1970s, the herd was only around 5,000 animals strong.

"The fact that the herd has grown steadily for the past 25 years while energy production has been ongoing on Alaska's North Slope is a solid sign," noted Norton, whose agency has been supportive of efforts to open part of the adjacent Arctic National Wildlife Reserve to oil exploration.

"Energy production in Alaska's North Slope will reduce dependence on foreign oil from dictators and unstable countries; will create new jobs; is strongly supported by labor unions; and will protect wildlife with the toughest environmental regulations ever applied," Norton said in a statement.