Oil down as U.S. sees Iraqi oil in weeks

April 16, 2003, 9:19PM HoustonChronicle.com-Reuters News Service

NEW YORK - Oil prices fell today after the U.S. military said Iraq's oilfields could be pumping at two-thirds of pre-war levels within weeks.

Crude oil for May delivery fell 11 cents, or 0.4 percent, to $29.18 a barrel on the New York Mercantile Exchange. Prices still were up 11 percent from an intraday low of $26.30 reached on March 21, the second day of the Iraqi invasion. In London, the June Brent crude-oil futures contract fell 14 cents, or 0.6 percent, to $25.02 a barrel on the International Petroleum Exchange.

Oil prices have slumped by 30 percent in a month, as Middle East oil flows have suffered less disruption than feared from the war in Iraq and U.S. ally Saudi Arabia has pumped up exports to cover for lost Iraqi supply.

Colonel Michael Morrow, adviser to U.S. forces chief General Tommy Franks at Central Command in Qatar, told Reuters that Iraq's oilfields would be in a position to pump 1.6 million barrels per day (bpd) within eight weeks.

"Our job is to fix it, get it pumping and let the new Iraqi government decide how to handle the exports," Morrow said.

The resumption of exports could be delayed by uncertainty over who will have the legal authority to issue contracts under the United Nations oil-for-food program, which has overseen Iraq's crude exports since 1996.

"That will take a political decision," Morrow said. "And that's way above my pay grade."

Before the war, Iraq was producing 2.5 million bpd -- 1.7 million bpd from its southern fields and 800,000 bpd from the north.

Iraq's northern Kirkuk oilfield was virtually untouched in the war, while the southern fields suffered some sabotage. The U.S. military said on Tuesday that the last blazing oil well had been snuffed out.

A fall in oil prices was kept in check by expectations that the Organization of the Petroleum Exporting Countries, which controls more than half the world's crude exports, would cut output at a meeting scheduled for April 24.

OPEC producers who were able to do so, chiefly Saudi Arabia, have raised their output to compensate for recent outages from Iraq, Nigeria and Venezuela.

The cartel is now pumping about 2 million bpd above its agreed ceiling of 24.5 million bpd.

OPEC now fears further price falls in the second quarter, as demand tails off at the end of winter in the northern hemisphere and the war in Iraq winds down with the country's oil infrastructure largely intact.

"I believe there is a glut in the market," said OPEC President Abdullah al-Attiyah. "The surplus is two-plus million barrels per day."

The International Energy Agency Wednesday urged OPEC to be cautious in reducing oil supply to the West, saying prices were still too high for companies to rebuild low stocks.

"I just think OPEC should be very cautious before taking strong decisions on output," said IEA chief Claude Mandil, adding that he did not expect Iraqi oil exports to resume within the next few weeks.

"Our view is there is no tidal wave of crude threatening to drown the market," Mandil said.

U.S. crude and refined product stocks last week held at lower-than-normal levels in the run-up to summer vacation driving demand, a government report said today.

U.S. crude oil stocks rose just 100,000 barrels to 277.2 million during the week ended April 11. Energy market analysts polled by Reuters had forecast a build of 2.5 million barrels.

Crude stocks are still just 3 percent above 26-year lows hit earlier this year. Gasoline stocks fell 300,000 barrels to 201.9 million and are 6 percent below last year's level ahead of summer.