Oil Ticks Lower, Awaits OPEC

<a href=reuters.com>Reuters, Tue April 15, 2003 01:20 AM ET SINGAPORE (Reuters) - Oil prices ticked lower on Tuesday but kept a narrow trading range as traders weighed the possibility of a reduction in OPEC supplies with abnormally low fuel stocks in many consuming countries.

U.S. light crude fell 14 cents to $28.49 a barrel, while London's Brent crude lost 15 cents to $24.70 a barrel.

Traders are waiting to see whether the OPEC producers' cartel will curb crude flows to the world market at an emergency meeting proposed for either late April or early May.

The Organisation of the Petroleum Exporting Countries fears that prices, which sank 10 percent after the start of the war in Iraq, could tumble to $20 or below during the remainder of the second quarter when oil demand usually drops off by about two million barrels per day (bpd).

OPEC has ramped up output by almost two million bpd over its official production ceiling to cover supply disruptions in Venezuela, Nigeria and Iraq.

It now fears that with Venezuelan and Nigerian production making a recovery, supply will sharply outpace demand, leading to big builds in stock levels and downward pressure on prices.

The winding down of the war in Iraq with its oil infrastructure largely undamaged also has raised speculation that crude exports from the Gulf producer could resume in a few months although administrative and legal issues may delay physical barrels from hitting the market.

Iraq exported about 1.7 million bpd of its daily output of roughly 2.5 million barrels before the war to oust Saddam Hussein.

OPEC officials have said the group might agree to tighten compliance to current production quotas, or cut the group production limit of 24.5 million bpd.

"While the market continues to prevaricate over the direction of the next move, we move closer to likely OPEC action, which reduces the risk of a sharp downside move," said Sydney-based oil analyst Simon Games-Thomas, who pegged $30 a barrel as "fair value" for crude at the moment given low Western oil stocks.

"The current discount reflects relief that Iraq's oil infrastructure is generally intact and concerns that there will be an early return to export status, which will threaten the status quo and cause a sell-off in oil prices."

WATCHDOG WARNING

The International Energy Agency (IEA), which acts as a watchdog for 26 industrialized nations on energy issues, warned producers last week that any cut to supplies would be imprudent for the time being despite a backlog of OPEC oil on the water waiting to hit consumer shores.

Crude inventories in the United States, the world's biggest oil user, have been running this year at a big deficit to 2002 levels and close to 270 million barrels, which the government considers the minimum needed to keep the nation's refineries operating smoothly.

Stocks of gasoline are also lower than at the same time in 2002, and some analysts fear that if refiners do not start to replenish tanks soon, there could be a supply crunch when motor fuel is in peak demand in the summer.

The government's Energy Information Administration (EIA) will release its weekly report on the health of U.S. fuel stocks on Wednesday. Traders closely monitor the EIA data for a snapshot of overall demand for oil.

Six analysts polled by Reuters predicted crude stocks to grow by 2.5 million barrels in the week to April 11, with gasoline inventories rising 1.55 million barrels.