Energy agency says oil market is in good shape

<a href=news.ft.com>Financial times By Toby Shelley

Published: April 10 2003 8:53 | Last Updated: April 10 2003 8:53 The oil market has weathered the storms of conflict in Iraq, communal violence in Nigeria, and the winter strikes against the government in Venezuela, according to the International Energy Agency.

Reinforcing a tone of cautious confidence first expressed by the OECD's energy watchdog as fighting commenced in Iraq, the IEA's widely-watched monthly market report said, "the system is working - producers are increasing production, oil is arriving in consuming regions and prices are easing".

After speaking with Ali Naimi, the Saudi oil minister, and Abdullah al-Attiyah, president of the Organisation of Petroleum Exporting Countries, at the start of the war in Iraq, Claude Mandel, executive director of the IEA, said he had been given assurances that large volumes of crude were "on the water". This, combined with the faster than expected recovery of Venezuelan output and imminent seasonal demand falls, led the IEA away from earlier dire warnings.

Indeed, the IEA pays its respects to its sparring partner, saying, "There is little doubt that Opec has done much to calm an otherwise jittery market".

The April market report confirms that Opec producers have been as good as their word in making up for shortfalls. "Clearly, producers have been pre-positioning crude in key consuming regions to mitigate the potential impact of a prolonged supply disruption, thereby assuming the financial risk and burden of transforming long haul into short haul supply", it says.

Of the additional world oil production in March of 740,000 barrels a day, 500,000 came from Opec members despite the war in Iraq and despite almost 40 per cent of Nigerian production being lost at times. The so-called Opec-10 - that is, excluding Iraq - produced 25.86m b/d in March, 1.4m above their target as circumstances made quotas notional. Opec is to meet later this month to decide whether to try to cut production to prevent a feared further collapse in prices. The IEA acknowledges the force of the argument for cuts - its own estimate for 2003 call on Opec crude is only 24.8m b/d. Nonetheless, it says the "real question mark remains over the timing, extent, distribution and duration of any cut".

The IEA's forecast for world oil demand remains roughly unchanged at 78m b/d for 2003.