UPDATE 2-Oil eases as U.S. takes Iraq's Kirkuk oilfields

Reuters, 04.11.03, 7:12 AM ET By Sujata Rao

LONDON, April 11 (Reuters) - Oil prices eased on Friday as U.S. troops took control of Iraq's northern Kirkuk oilfields, ending any lingering concerns about the status of Baghdad's vast petroleum wealth. The capture of Kirkuk, capable of pumping 900,000 barrels per day (bpd), leaves U.S.-led forces protecting both Iraq's northern and southern fields. London Brent fell 32 cents to $24.15 a barrel. U.S. light crude dipped 36 cents to $27.10. "All the worries about the safety of Iraqi oil have evaporated," said Peter Gignoux, head of the London energy desk at Citigroup. "Iraq had contributed so much to a war premium on oil prices and now, in a dramatic role reversal, is contributing to a peace discount." Prices have fallen 10 percent since the war started three weeks ago as fears receded of a prolonged conflict, with major damage to Iraqi oil facilities. Some analysts think even cheaper crude could come with lower seasonal demand in the second quarter and rising production from Nigeria and Venezuela after stoppages. "With all the Iraqi oil facilities now in allies' hands, there seems to be no threat to medium or long term Iraqi supplies and the market is marking that down," said John Waterlow, oil analyst at Wood Mackenzie in Edinburgh. "I think there is more downside to the market."

OPEC DEFENDS PRICE OPEC though has other plans. The producer group is expected at an emergency meeting late this month or in early May to curb production to defend its $25-a-barrel price target. "OPEC's current production rate is creating a tidal wave of crude oil that cannot all be absorbed by current and even rising demand," said Aaron Brady, senior analyst at Boston-based Energy Security Analysis Inc (ESAI). OPEC could decide just to rein in extra supplies it pumped before the war, or go further and cut official production quotas. "What we have said is that OPEC will discuss all options: cutting production, adhering to quotas and all these options to stabilise the market to remove two million plus," OPEC President Abdullah al-Attiyah said on Thursday. The cartel for March was estimated pumping about two million bpd above official production limits of 24.5 million bpd. The International Energy Agency, adviser to consumer nations on energy, on Thursday said it saw a backlog of extra OPEC crude waiting to reach importing countries in the second quarter. "With Venezuelan production recovering, the long-expected overhang of crude is starting to show up in U.S. inventories, which have risen almost 11 million barrels in the last three weeks," Boston's ESAI said.