Oil Slumps on U.S. Advance in Iraq

<a href=reuters.com>Reuters Fri April 4, 2003 07:13 AM ET By Tom Ashby

LONDON (Reuters) - Oil prices fell four percent on Friday on expectations that the U.S. advance on Baghdad and capture of the international airport would herald a swift return of Iraqi exports, while Nigerian supplies recovered.

Oil has lost 25 percent of its value in the last month as Western military advances in Iraq brought closer the prospect of extra supply to ease thin stocks in the West.

Benchmark Brent crude oil dropped 96 cents to $24.54 per barrel by early afternoon in London, while U.S. crude futures fell 91 cents to $28.06.

"Every thrust forward suggests an end to the conflict is closer which means a return for Iraqi crude, and that is bearish for prices," said David Thomas of Commerzbank Securities.

U.S. forces said they seized Baghdad international airport, leaving the capital in range of U.S. rockets and artillery which have driven over 300 miles from Kuwait.

A U.S. spokesman said about 2,500 Republican Guards had surrendered. U.S. oil company ChevronTexaco said it was gradually restarting Nigerian production on Friday that it was forced to close down 12 days before because of ethnic clashes in the delta region.

Nigeria had shut about 40 percent of its output because of the political violence ahead of elections later this month.

The surprise Nigerian stoppage had fueled concern about world oil supplies after Iraq, the world's seventh largest exporter, stopped selling oil in the week leading up to the first U.S. attacks on March 20.

Analysts expect Iraqi exports to resume within three months, and any delays in this timetable could still drive prices higher.

Southern fields which pump about half the country's oil are already under control of U.S. and British troops, but the northern oilfields near Kirkuk are still in Iraqi hands.

OPEC AT FULL STRETCH

Other Middle Eastern oil producers have hiked output sharply to cover for the lost Iraqi supplies, although stocks in the West are still below normal because of earlier disruptions from Nigeria and Venezuela.

"If Iraq's production outage extends beyond the second quarter, OPEC would not be able to meet market requirements," said Mike Rothman of Merrill Lynch.

Most members of the Organization of the Petroleum Exporting Countries are now pumping at full capacity.

"The underlying supply/demand pressures in the global oil balance do not support the notion of prices falling much from recent levels," Rothman said.

"Storage remains well below normal levels and that deficit is expected to persist into the back half of the year, and OPEC's spare capacity remains limited," he added.