Agency Doubts OPEC's Ability to Stem Oil Lost Amid War
www.quicken.com Thursday, March 13, 2003 00:27 AM ET Printer-friendly version VIENNA -- Undermining the Organization of Petroleum Exporting Countries' reassurances that the cartel can keep the world adequately supplied with oil, the International Energy Agency says OPEC alone can't immediately make up for lost Iraqi exports in the event of a war in coming weeks.
The world's energy watchdog said the global oil market is extremely tight. The agency's latest data, released Wednesday, suggest that in case of a war in Iraq later this month, oil may have to be released from strategic stocks held by the U.S., Germany, Japan and other members of the 26-nation IEA to keep already-high prices in check.
The IEA's assessment irked OPEC ministers who decided Tuesday to leave the group's output limits unchanged. These officials, gathered in Vienna this week, had sought Tuesday to reassure oil consumers the cartel can and will increase supplies to offset a disruption in case a war cuts some two million barrels a day of exports from Iraq. On Wednesday, OPEC officials disputed the IEA's findings.
"There are many figures, but I think we have enough" oil-production capacity, Bijan Namdar Zangeneh, Iran's oil minister, said.
The IEA data showed a complex, moving picture of oil markets, where rising oil supply and a coming seasonal dip in demand will result in markedly different conditions at different points in time. The bottom line: OPEC can't cover a disruption of Iraqi supplies later this month. But its ability to cover such losses increases in April, and by May it can fully offset the loss of Iraqi supplies as well as a small reduction in Kuwaiti production. The reasons have to do with certain assumptions: a seasonal decline in demand for OPEC oil, rising output from Venezuela and capacity increases undertaken by Saudi Arabia, the world's largest oil exporter.
For the moment, though, the situation is dicey. The IEA reckons if war knocked off Iraqi exports from mid-March until May, and some 300,000 barrels a day of production were lost in Kuwait, the world faces a potential oil-supply shortfall of 1.68 million barrels a day during the second half of this month. For April, the shortfall in supply is reduced to 580,000 barrels a day. In May, OPEC can once again meet expected market needs in full.
This assessment may irk Ali Naimi, the influential oil minister of Saudi Arabia. Mr. Naimi pledged "there will be no shortage of oil," because Saudi Arabia and others in OPEC had the ability and the will to raise production to levels that might be needed. Saudi Arabia is believed to be the only country that has significant unused capacity. Yet the IEA data showed Saudi capacity to offset losses was less than many had thought. With output already at some 9.1 million barrels a day, the IEA figured Saudi Arabia can only pump an extra 400, 000 barrels of oil for March. This will rise to 600,000 barrels a day in April, and 900,000 barrels a day in May, assuming early March production levels and a buildup of capacity during the next six weeks.
Saudi Arabia's output capacity is likely to have featured in discussions the IEA's executive director, Claude Mandil, had earlier this month with Mr. Naimi in Riyadh. Mr. Mandil has promised the IEA will act swiftly to release oil from strategic stocks, if needed. But Mr. Mandil has also made clear the IEA will only act after it consults with OPEC and determines whether it needs to act because the exporters' group can't fully make up for any lost supplies.