Crude Oil Falls as U.S. May Seek Resumption of Iraqi Exports
<a href=quote.bloomberg.com>Bloomberg By Nesa Subrahmaniyan and Wing-Gar Cheng
Singapore, April 21 -- Crude oil fell as much as 1.6 percent in New York on speculation the U.S. will seek an early resumption of Iraqi oil exports, adding to concern about a glut as northern hemisphere weather warms up and cuts demand.
The U.S., which invaded Iraq to topple its leader Saddam Hussein, is seeking an end to United Nations sanctions on the Middle East producer's oil exports to help fund its recovery from the war. The U.S. last week awarded Bechtel Group Inc. a $680 million contract to rebuild roads, bridges and other facilities, the largest part of a $1.1 billion reconstruction project.
Iraq ``needs the money for construction and that is a very, very strong incentive to get it started early,'' said Anthony Nunan, manager of the international petroleum business at Mitsubishi Corp. in Tokyo.
Crude oil for May delivery fell as much as 49 cents to $30.06 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It traded 16 cents lower at $30.39 a barrel at 11:40 a.m. Singapore time.
On Thursday, oil rose $1.37, or 4.7 percent, to $30.55 a barrel, its biggest gain in three weeks, after members of the Organization of Petroleum Exporting Countries said the group should cut output at a meeting scheduled for Thursday, to accommodate any resumption in Iraqi shipments. The exchange was closed Friday for the Easter holiday.
The U.S. will ask the UN to lift its sanctions on Iraq in phases, keeping supervision of oil sales as it gradually transfers other parts of the country's economy to a new interim authority, the New York Times reported on Saturday. The step-by-step approach is designed to avoid confrontation with France and Russia, which opposed the U.S.-led invasion of Iraq.
Northern Fields
Iraq will be able to start pumping oil from its northern fields in weeks because of limited damage to installations, the U.S. military has said. U.S. Army engineers believe that storage tanks in the area around Kirkuk as well as the region's main export terminal in Turkey are full, the Wall Street Journal said.
The U.S. still has obstacles to overcome before it persuades the UN to endorse any resumption of Iraqi oil exports. On Friday, Russia said the UN should verify that Iraq is free of weapons of mass destruction before it cancels sanctions against the country, rather than ``automatically'' lifting them.
UN sanctions on Iraq should be lifted only by the UN Security Council under conditions set by UN resolutions, Russian Foreign Minister Igor Ivanov said in a statement.
The only big problem is the battle between the UN and the U.S.,'' Mitsubishi's Nunan said. Who has the authority to sell? The U.S. doesn't want to cede its authority to the UN, and that's the big problem.''
Iraq Exports
Oil exports from Iraq, OPEC's third-largest producer in February, have been suspended since March 20 when the U.S. and U.K. invaded the country to remove the regime of Saddam Hussein.
``Iraq may export 1.5 million barrels a day of crude oil to start off and then rising to 2 million barrels within the next three months,'' said Hiromune Fujisawa, oil futures trader at Nihon Unicom Corp. in Tokyo.
OPEC, which pumps a third of the world's oil, lowered its forecast for global demand because of SARS, or severe acute respiratory syndrome. In a monthly report released on Friday it reduced its projection for worldwide consumption of oil to 77.35 million barrels a day, 80,000 barrels down from its forecast last month.
The outbreak of SARS is reducing travel and tourism and is feared to undermine economic growth in the affected regions,'' OPEC said. In addition, the war in Iraq has had an adverse effect on air travel. The resulting decline in aviation fuel consumption is expected to continue through the second quarter of 2003.''
OPEC Output
OPEC output rose to a 1 1/2-year high in March as members made up for disruptions caused by the U.S.-led invasion of Iraq. OPEC's benchmark oil price index has dropped 12 percent during the past month, to $26.25 on Thursday.
A successful accord to reduce output could have the desired effect of preventing OPEC's benchmark price from falling below the group's target of $22 to $28 a barrel, traders said.
``Traders expect prices to rise once there is less oil in the market after OPEC cut output,'' Nihon's Fujisawa said.
Iran, Algeria, Qatar and Indonesia have all called for a cut in OPEC output. Venezuela estimates overproduction at about 2 million barrels a day and may need to reduce production by 11 percent, said Luis Vierma, deputy minister at the Oil Ministry, quoted by Venpres news agency on its Web site. Last Updated: April 21, 2003 00:02 EDT