OPEC Suspends Production Quota - * Crude, fuel prices drop

www.thisdayonline.com By Mike Oduniyi with Agency report

The Organisation of Petro-leum 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.