Crude flood hits oil price

Theage.com.ve April 9 2003 By Sri Jegarajah Singapore

Crude oil fell as much as 2.3 per cent in New York as US-led forces neared victory in Iraq, spurring concern that a resumption in exports from the Middle East oil producer could lead to a second-quarter global surplus.

"The market is facing a glut, not a shortage," OPEC president Abdullah bin Hamad al-Attiyah said in Paris. The group will meet on April 24 to discuss a cut in output to stem any plunge in prices below OPEC's $US25 a barrel target.

Prices are more than a quarter lower than a month ago as coalition troops tighten their control over Baghdad amid reports that Iraq's leader Saddam Hussein and his sons may have been killed in a bomb attack in the city.

"The war will be over soon. That's positive, but markets are now looking beyond Iraq," said Tetsu Emori, a commodity strategist at Mitsui Bussan Futures in Tokyo. "OPEC may have to cut output because demand in the second quarter is down."

Crude oil for May delivery fell as much as US65¢ to $US27.31 a barrel in electronic trading on the New York Mercantile Exchange. On Monday, oil fell US66¢ to $US27.96 a barrel. Prices have tumbled 30 per cent from a 12-year high of $US39.99 a barrel on February 27.

In Iraq, coalition forces now control 900 of the 950 oil wells in the southern Rumaila oilfield, the country's largest. Iraq produced an average of 2.48 million barrels of oil a day in February, about 3 per cent of world output.

"With the war news as positive as it is, if it weren't for the OPEC announcement we probably would have been down another dollar on the crude oil," said Chris Mennis, owner of New Wave Energy, a trader of oil swaps and oil products in California. "It probably kept prices from collapsing."

Oil rallied briefly on Monday after OPEC said it would hold the special meeting on April 24.

OPEC might consider a "maximum" output cut of 1 million barrels a day, Mr Emori said. A cut of 2 million barrels a day might inflate the price of oil, damaging economic growth in key oil consuming countries including the US, he said.

Oil output from OPEC rose in March to the highest level in 11/2 years, as increases in Venezuela and Saudi Arabia made up for a drop in Iraqi supply.

• Bloomberg