Oil Rises as Iran Calls for Supply Cut

<a href=reuters.com>Reuters, Thu April 17, 2003 04:01 PM ET

NEW YORK (Reuters) - World oil prices rose nearly five percent on Thursday ahead of next week's emergency OPEC meeting as traders expect the cartel to tighten global crude supply.

U.S. crude futures in New York added $1.37 to $30.55, the highest price for more than two weeks, while Brent crude oil in London gained 86 cents to $25.85 per barrel.

Prices rose as Iran called on OPEC to cut its official output limits at the April 24 meeting, warning that failure to rein in supply could trigger a price collapse.

Having raised exports close to maximum capacity ahead of the U.S.-led war on Iraq, OPEC ministers have taken fright from a 30 percent drop in prices.

Iran's view is the most hawkish aired so far by members of the Organization of the Petroleum Exporting Countries, which controls over half of world exports.

Algeria believes OPEC could balance markets simply by restoring compliance to its existing 24.5 million barrel per day (bpd) ceiling, cutting out two million bpd of surplus.

Paul Horsnell, oil analyst at investment bank J.P.Morgan, said predictions of a price crash did not stand up and expected any supply cuts to push prices back up.

"We do not think that OPEC should be in any rush to cut production at this point," he said.

"There is a risk that, in responding to overly bearish sentiment, OPEC will simply repeat the mistake of last year and over-tighten the market."

Oil demand usually dips in the second quarter because of lower winter fuel needs in the northern hemisphere. But analysts point to an expected recovery in demand over the summer months when gasoline use soars during the long summer break.

The International Energy Agency, energy watchdog for 26 industrialized nations, has urged OPEC to be cautious in any supply cut, saying that prices are still too high for companies to rebuild low stocks.

IRAQ FACTOR

Iranian Oil Minister Bijan Zanganeh said the expected return of Iraqi oil exports was an important development for world oil markets which could lead to a "price challenge."

He said he expected Iraqi output to return to its pre-war rate of three million bpd in short order, rising another 500,000 bpd within a year.

Output from Venezuela and Nigeria is also recovering after political strife in those countries hit exports.

"Any increased supplies from Venezuela, Nigeria or, less plausibly in the short run, Iraq, would need to be offset if and when they arrived," Horsnell said, "but we would view any reduction in the total as skewing price risks to the upside."

The U.S. military reckons it could get Iraqi oilfields pumping at two-thirds of pre-war levels within weeks, but exports will not resume until a political authority is created in Baghdad and United Nations sanctions are lifted or modified.

President Bush on Wednesday urged the U.N. to lift sanctions, but United Nations diplomats said an end to the embargo should depend upon the world body certifying that Iraq is free of nuclear, biological and chemical weapons, one of the reasons Washington gave for launching the war.

The U.N. Security Council is likely to again sidestep any decision on a mechanism for Iraqi oil sales when it next moves to keep humanitarian goods flowing to Iraq in the next few weeks as it will raise questions of who would be in charge of post-war Iraq in the near term, diplomats said.