Markets & Stocks --Oil dips with Kirkuk output in sight

Crude prices drop as significant output from Iraq's largest oil field seen within weeks.

money.cnn.comApril 14, 2003: 6:53 AM EDT

SINGAPORE (Reuters) - Oil prices opened the week one percent lower Monday, as the prospect of a return of Iraqi crude exports to the world market outweighed possible supply cuts by OPEC to avert a potential price slide.

U.S. light crude for June delivery fell 37 cents to $27.77 a barrel, while London's Brent crude for June delivery fell 25 cents to $24.50 a barrel.

Renewed downward pressure on oil prices came after weekend comments by a senior U.S. engineer that Iraq's large Kirkuk oilfields could start pumping within weeks.

The northern fields are capable of producing up to 900,000 barrels per day (bpd) of Iraq's pre-war production of roughly 2.5 million bpd.

"It's a definite possibility that could be just a few weeks away," said Tom Logsdon, a senior member of the U.S. Army Corps of Engineers charged with repairing Iraq's oilfields.

Logsdon said the southern oilfields, where output was up to 2.1 million bpd before the war began March 20, could be up and running in less than three months.

"Depending how quickly workers come on line, we estimate we will have between 330,000 and 1,000,000 bpd being produced within 12 weeks from now," said Logsdon.

Oil prices fell about 10 percent after the start of the war as U.S. and British forces quickly secured a majority of Iraq's oil infrastructure in the south of the country and traders predicted a fairly swift end to hostilities.

But any resumption of crude exports will be up to an interim authority in Baghdad in conjunction with the United Nations, where some analysts forecast that diplomatic wrangling will keep Iraqi barrels off the market for many months to come.

Iraq's crude could hit world markets just as demand is expected to wane by up to two million bpd. The second quarter sees a seasonal slowdown between winter demand for heating and the peak consumption of gasoline during summer vacations.

Compounding the demand downturn, many commercial airlines have slashed routes due to the spread of the flu-like SARS virus around the globe.

At the same time, supplies from OPEC producers are running almost two million bpd above the group's self-imposed ceiling, to counter supply disruptions from Venezuela, Nigeria and Iraq.

The Organization of the Petroleum Exporting Countries is planning an emergency meeting later this month or in early May to discuss tightening compliance to current output quotas or even possible curbs to formal limits.

"We expect that with oil prices heading lower, OPEC will try to be proactive in attempting to keep oil prices at, or above, $25 a barrel," said David Thurtell, commodities strategist at Commonwealth Bank in Sydney.

The International Energy Agency said last week that a big volume of OPEC crude was sitting on the water waiting to hit consumer shores, but warned that it would be imprudent for producers to cut supplies too soon as fuel stockpiles in industrialized nations remain well below normal levels.

Venezuelan President Hugo Chavez said Friday that South America's biggest oil producer was ready to back any proposed OPEC supply cut to support prices in the group's target band of $22 to $28 a barrel for OPEC's reference basket of seven crudes.

OPEC's basket price stood at $25.40 Thursday, compared with a monthly average of $31.54 in February.

"If we have to cut production by one million bpd, or 1.5 million bpd, or 1.8 million bpd, we would be ready to cut," Chavez told a news conference.

An anti-Chavez strike in December and January slashed crude production in Venezuela, usually OPEC's third biggest producer, from 3.1 million bpd to just 40,000 bpd at its low point.

Officials at state oil firm PDVSA said over the weekend that output had recovered to pre-strike levels of about 3.05 million bpd for crude and 150,000 bpd of condensate production.