Oil rises on US stock worry, OPEC output cut plan

Reuters, 05.27.03, 8:12 AM ET By Sujata Rao

LONDON, May 27 (Reuters) - Oil prices rose on Tuesday as traders expected the world's top exporter Saudi Arabia to cut supply next month, while oil inventories remained low in the United States as the high demand summer driving season took off.

Opening after a long holiday weekend, London benchmark Brent rose 41 cents to $26.65 a barrel, extending the gains chalked up on Friday. U.S. light crude rose 39 cents to $29.55 a barrel.

Traders said the market was worried about lower OPEC supply at a time oil stocks in the U.S., the world's biggest oil consumer, remained far below average for this time of the year.

The inventories have come into sharp focus as the Memorial day holiday last weekend marks the start of the U.S. driving season when Americans take to the roads on vacation.

U.S. gasoline consumption in the summer accounts for 12 percent of global energy demand during the period.

"There were all these expectations of a wall of crude which was supposed to arrive and resolve all the stock problems but that didn't seem to happen," said John Waterlow, analyst with Wood Mackenzie in Edinburgh.

"The position is that the stocks in the United States and global stocks need to be replenished, any excess crude supply will go towards that," he added.

LOW STOCKS

U.S. crude stocks stand 12 percent under year-ago levels while gasoline inventories are four percent below normal. "The market is nervously higher. There are a lot of worries on unleaded gasoline," one oil trader said.

Adding to the worry is that Venezuela, a key gasoline source for the U.S., says it will further delay exports of reformulated clean burning gasoline that is mandatory in many U.S. states. The first shipment, since a crippling two month strike ended in January, is now expected to leave in the first half of June.

Crude prices have rebounded by more than 10 percent since the start of May, as U.S. energy stocks have failed to return to normal after a harsh winter.

Concern is mounting that OPEC is now preparing to trim supplies. A Gulf source told Reuters on Monday that Saudi Arabia was preparing to cut June supplies to match the output quotas agreed on last month. It is expected to cut output to 8.25 million barrels per day (bpd) in June.

Consultancy Petrologistics said on Tuesday Saudi Arabia pumped 9.1 million bpd in May with overall OPEC output at 26.7 million bpd.

But the Saudi news was slightly tempered by reports that Iraq is gearing up for its first oil exports since the war, aiming to first sell some eight million barrels lying in storage at the Turkish port of Ceyhan.

The head of Iraq's state oil marketer SOMO, Mohammed al-Jibouri, told Reuters on Tuesday Baghdad aims to export the first post-war barrels of crude oil, now sitting in storage tanks, by mid-June.

He said a steady export flow should follow swiftly as output from the oilfields is rising fast.

Before the war, Iraq supplied four percent of globally traded oil and analysts say a resumption of Iraqi exports is likely to trigger a price slide in the third quarter of 2003.

Baghdad is already pumping 800,000 bpd, just above the 500,000 bpd needed for the internal market.

The resumption of Iraqi exports is a major factor that OPEC will need to consider when it meets in Qatar on June 11. Copyright 2003, Reuters News Service