Top Of The News --Oil Flows Freely As War Proceeds

www.forbes.com Dan Ackman, 03.21.03, 9:06 AM ET

NEW YORK - There have been oil supply disruptions in the past week, but not in the Persian Gulf. The relatively small-scale disruptions came in Nigeria, where Shell Transport and Trading announced further closures of oil flow stations owing to recent violence near the company's facilities.

Shell (nyse: SC - news - people ) plans to withdraw all staff from north of the Niger Delta, which likely would cut oil output by about 126,000 barrels per day. This and other disruptions in the West African nation have been overshadowed and prices have dropped as the U.S.-led war against Iraq has gone largely according to plan.

Since the end of diplomatic efforts made the Iraq war certain, world oil prices have fallen by more than 25% and continued their decline overnight. Fears that drove prices higher in the last three months have not been realized as world oil markets shrugged off the minor supply disruptions caused by the war, which total less than 1% of OPEC's output.

Benchmark Brent crude oil fell 42 cents, to $25.08 per barrel, in London morning trading and touched a three-month low of $24.80. U.S. crude futures also plumbed fresh three-month lows, down 43 cents to $27.69. The world price of oil has dropped between 26% and 27% in a week.

There have been reports issued by U.S. Defense Secretary Donald Rumsfeld and Kuwaiti television that there may be oil fires in Kuwait, but the Iraqi oil minister has denied the reports and a British military spokesman said U.S. forces should seize much of Iraq's Rumaila oilfields intact. In the short term, legal oil exports from Iraq have ceased, but that stoppage has not actually cut into supplies. There have been no reported disruptions of tanker movements in the Persian Gulf.

In any event, Iraq's fellow OPEC members have stepped in.

Speaking for the group, Abdullah bin Hamad Al-Attiyah, minister of energy and industry of the state of Qatar and president of the OPEC conference, said in a statement: "In light of the events unfolding in Iraq and the interruption of supplies from an OPEC founder member, in my capacity as president of the conference, I have consulted with their excellencies, the heads of delegation to the OPEC conference, with whom I have discussed the implementation of the above-mentioned conference decision." That decision was "to respond to any supply crisis," but so far there is none.

Venezuela, OPEC's only democracy, has revived production. Its government claims production of 3 million barrels per day--about what the country was producing before labor unrest began there in early December 2002. This quantity is slightly more than Iraq produced before the war, according to the U.S. Energy Information Administration.

While oil price drops are generally good for the U.S. and other oil importers, Reuters reports that in the Middle East, the news is being seen as not so good and the Saudi-led response to the war has caused divisions within the cartel.

While OPEC Secretary General Alvaro Silva Of Venezuela said that members have been authorized to use their spare capacity to make up for the shortage of Iraq supply, Iranian Oil Ministry Adviser Hossein Kazempour Ardebili disagreed. He said on Friday any increase in output would be a "violation" since no decision had been taken to raise OPEC quota limits.

"The OPEC general secretary is not authorized to say this and it is OPEC that could decide about it and none of the OPEC ministers approved it," Reuters quoted Kazempour as saying.

"It is giving a green light to America to launch an attack and none of the OPEC members wants to give a green light to attack another OPEC member," he said. OPEC President Abdullah al-Attiyah said on Thursday the exporter group saw no need to pump more oil into a saturated market.