OPEC Pumps Extra to Prevent War Oil Spike

<a href=reuters.com>Reuters Wed April 2, 2003 04:34 AM ET By Tom Ashby

LONDON (Reuters) - OPEC exporters cut the cost of the Iraqi war to the West by releasing extra volumes of oil last month to prevent a spike in crude prices, according to a Reuters survey of cartel production. The United States' main allies in the Gulf -- Saudi Arabia and Kuwait -- hiked output dramatically with Riyadh pumping at its highest rate in 21 years, the survey found.

Even U.S. foe Iran lifted supplies having publicly opposed any rise in exports on the grounds that it would signal a green light to Washington for an attack.

"The economic incentive to take advantage of high prices while they lasted proved to be stronger than political motives," said Geoff Pyne, consultant to Sempra Energy Trading.

The 11-member Organization of the Petroleum Exporting Countries pumped an extra 440,000 barrels per day (bpd) in March to reach 27.65 million bpd on average, the survey of industry consultants and officials showed.

Excluding Iraq, where exports were cut just ahead of the war, 10 cartel members with quotas pumped an extra 1.77 million barrels a day to 26.45 million bpd. That is 1.95 million bpd above their self-imposed limits of 24.5 million.

The extra barrels were sorely needed by Western importing countries, which had drawn down commercial stockpiles over the winter due to cold weather and shortages from a strike in Venezuela.

Benchmark Brent crude oil prices slumped 17 percent in March, ending the month at $27.18 per barrel.

SAUDI LEADS GAINS

Saudi Arabia extended recent output gains to average 9.51 million bpd in March, its highest level since October 1981, but still short of its full capacity of 10.5 million bpd.

"Saudi Arabia had the chance to show that they are a reliable supplier to the United States. They did a good job," said George Beranek of Petroleum Finance Co in Washington.

Kuwait tapped surge capacity to reach 2.25 million bpd on average in March, despite the closure of some small fields on the Iraqi border ahead of the war.

OPEC's only Latin American member Venezuela recorded a sharp jump in March as its revolutionary government crushed a rebellion by managers and skilled workers in the state-owned oil company.

Iraq pumped an average of 1.20 million bpd in March, the survey found, starting the month at 2.2 million, but ending at just 300,000 bpd.

Exports stopped in the week leading up to the U.S.-led attack on March 20, and oil pumped for domestic use and smuggling also declined as the invasion gathered steam.

U.S. army engineers said they would take about three months to prepare Iraq's southern oilfields to resume exports, because of booby-traps and neglect.

Iraqi output is likely to fall sharply again in April during a full month that is expected to see only small volumes being pumped from its northern Kirkuk fields.

Nigeria, gripped by political violence ahead of mid-April elections, saw output slashed progressively from the middle of March. Losses reached 800,000 bpd by March 24.

Analysts said the extra output from Saudi and others was filling a hole in world markets left by Venezuela, Iraq and Nigeria, but it could create a surplus in the next few months. "There is plenty of oil around, and in the long run this is bearish," Pyne said.

The OPEC secretariat estimates an average call on OPEC oil this year of 24.65 million bpd, a full three million bpd below March's estimated output.

OPEC Secretary-General Alvaro Silva said earlier this week he was concerned about a glut of oil on world markets, especially in the second quarter when OPEC expects demand for its crude to fall to 23.10 million bpd.

The Reuters survey seeks a best estimate of flows from OPEC countries based on the views of officials, industry monitors and analysts inside and outside member countries.