OPEC is unlikely to cut production levels at next meeting

International herald Tribune Neela Banerjee NYT Tuesday, June 10, 2003   KUWAIT CITY This was supposed to be a tough season for the world's largest exporters of crude oil: They expected demand for petroleum to look weak, Iraq's postwar return to the oil market to be strong - and prices, as a consequence, to fall. But none of that has come to pass. So when the Organization of the Petroleum Exporting Countries meets Wednesday in Doha, Qatar, oil industry analysts said, it is expected to do nothing about production levels. "OPEC gets a free pass at this meeting" from making a decision, said Lawrence Goldstein, president of the Petroleum Industry Research Foundation in New York. During the war, oil traders said that Iraqi exports would resume by late May or early June. Now, those exports are very likely to be delayed at least a month. "Iraq is coming back slower and weaker than originally thought," Goldstein said. "Prices are hovering around $30 a barrel, and we're going into seasons of stronger demand in the third and fourth quarters." As far back as early March, OPEC members were concerned about how an Iraq free of Saddam Hussein and United Nations sanctions would affect the strategy the cartel has used successfully for almost four years to keep prices fairly high, despite global economic cycles. Iraq was a founder and an active member of OPEC, but since the Gulf War of 1991, its exports have been regulated by the UN oil-for-food program, not OPEC's quota system. OPEC understood that a U.S. victory in a war with Iraq, which seemed assured, would prompt a repeal of the UN program. After the war, the U.S.-appointed civil administration in Baghdad and the Iraqi Oil Ministry set an aggressive schedule for resuming exports. Two weeks ago, after sanctions were lifted, Thamir Ghadhban, interim chief executive of the Oil Ministry, said that Iraq would be exporting a million barrels a day by mid-June. Iraq was exporting nothing then and was not even producing a million barrels a day. Iraq is selling 10 million barrels of oil in storage in Turkey and Gulf countries. But starting a regular flow for export has been hampered by security problems in its southern oil region, particularly the vast Rumaila fields. Jabbar Ali Leaby, director of South Oil Co. of Iraq, which is responsible for production at Rumaila and other areas near Basra, has complained long and bitterly that security problems and continued looting have made increasing production difficult. Looting has destroyed the Garmat Ali water-treatment installation, which supplied water to Rumaila for injection into wells to aid in oil extraction. The U.S. Army Corps of Engineers, which has been coordinating the reconstruction of Iraqi oil facilities, insists that production at Rumaila can increase without the water injection. But independent oil experts disagree. Raad Alkadiri, director of the Market Intelligence Service for the consulting group PFC Energy, a Washington consulting group, wrote after a recent trip to Baghdad, "Ongoing looting, and the inability of Southern Oil Co. personnel to carry out appraisals of the local fields because of a lack of security, has severely hampered the process of bringing production back online at the country's workhorse southern fields." Commercial supplies of gasoline and diesel oil in the United States and other major oil-consuming countries have remained low, though OPEC produced far above quota levels early this year. Industry analysts said that one reason supplies have been persistently low may be that demand was greater than thought, despite the sluggish economy and, in some places, the outbreak of SARS, severe acute respiratory syndrome. Another reason, analysts said, may be that some OPEC members exaggerated output. Goldstein said his company estimated that Venezuela produces 500,000 fewer barrels a day than the 3 million barrels the government has reported. Vera de Ladoucette, senior director for Middle East research at Cambridge Energy Research Associates, said Indonesia and Iran had fallen short of their OPEC quotas. Cambridge Energy estimated that OPEC exported 26.1 million barrels a day in April, compared with its official tally of 27.4 million barrels a day.