US confident Opec can make up lost oil exports

By Carola Hoyos in London Published: March 20 2003 11:22 | Last Updated: March 20 2003 21:07

The US on Thursday sought to reassure the nervous oil market by expressing confidence that the Opec oil cartel could make up for the loss of Iraq's exports.

Spencer Abraham, the US energy secretary, said that the US was not tapping its emergency oil stockpile and that world supplies were "more than adequate to compensate for any disruption".

Just hours later Opec announced that it would permit its members to ignore their quotas and tap into their spare capacity.

The statement was seen as largely a public relations exercise as most Opec members are already producing above their quota and at their maximum capacity.

The US decision not to dip into the 600m barrels of stocks was in contrast to the last Gulf war. On the day airstrikes began in 1991, the US announced it would sell 33.75m barrels of its oil and sent the oil price tumbling more than $10 a barrel.

"You don't want to use it too early," said Joseph Stanislaw, president of Cambridge Energy Research Associates, pointing out that in 1991 the US decision to tap its inventories was delayed, coming five months after Iraq had invaded Kuwait.

So far the US and the 25 other members of the International Energy Agency, which co-ordinates international stock releases, believe the Opec oil cartel and in particular Saudi Arabia are able to make up for the interruption of Iraqi exports.

Claude Mandil, the IEA's executive director, said yesterday: "Producers are confident they can keep the market adequately supplied and we have been assured that they will make every effort to do so."

But movements in oil prices on Thursday highlighted the volatility that the war could cause when news surfaced that the Iraqi regime may have begun to sabotage their oil fields.

Donald Rumsfeld, US defence secretary, on Thursday said the Iraqi regime may have set fire to three or four oil wells in the south of the country. He said: "It is a crime for that regime to be destroying the riches of the Iraqi people."

The allegations, which were denied by Iraqi officials, initially pushed benchmark Brent oil prices up 75c to a high of $27.50 a barrel.

But prices reversed their gains as doubts over the veracity of the claims grew and traders continued to believe it would be a short war.

If that assumption is proved wrong, prices could yet surpass the $39.99 high the US benchmark hit last month, analysts said. Much will also depend on whether Thursday's allegations of the well fires indicated the beginning of a sustained scorched earth policy, in which case it could take years rather than months for Iraq's oil exports to return to the market after the end of the war.