Oil prices surge to 12-week high

June 10, 2003, 2:13PM Associated Press

NEW YORK - Oil prices rose to their highest close in 12 weeks today, a day ahead of an OPEC producer cartel meeting that is expected to postpone fresh supply cuts.

In New York, U.S. light crude settled up 28 cents at $31.73, the highest closing price since mid-March and up nearly 30 percent from a year ago. In London, benchmark Brent crude oil was up 20 cents at $28.05.

OPEC ministers meeting in the Middle East emirate of Qatar on Wednesday are widely expected to leave production limits unchanged as delays in the resumption of Iraq's oil exports have kept global supply tight.

Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah said on Tuesday he wanted OPEC to keep its current 25.4 million barrel per day (bpd) ceiling in place until it meets again in late September.

"From now to September, Iraq will still have a lot (to do) to reach the previous level of production ... we still have time to continue with our ceiling," the minister said.

After falling from 12-year highs near $40 after Middle East oil facilities escaped the U.S.-led invasion of Iraq without much damage, prices have rebounded to levels which could further undermine already weak economic growth.

High prices for rival fuel natural gas have raised concerns over the economic impact of rising energy costs.

"If we stay at these very elevated (natural gas) prices, we're going to see some erosion in a number of macroeconomic variables," Federal Reserve Chairman Alan Greenspan told a hearing of the House of Representatives Energy and Commerce Committee.

The Organization of the Petroleum Exporting Countries, which controls around half the world's crude exports, aims to keep prices in a range of $22 to $28 a barrel for its basket of crude oils. The basket was last valued at $27.53.

"High crude oil prices make an imminent cut to OPEC quota levels unlikely at its meeting on Wednesday," said Barclays Capital Research in London in its daily report.

"Instead the group is likely to flag up further meetings in July/August in order to monitor and accommodate Iraqi output."

Iraq this month will sell its first crude since the U.S.-led invasion, tendering 10 million barrels of stored crude oil. That would allow it to deliver an average of about 750,000 bpd during the second half of June.

Looting and sabotage at Iraqi oil facilities since the war will keep exports down to 1 million bpd in July, Iraq's de facto oil minister Thamir Ghadhban has said. Before the war, Iraq was producing about 2.5 million bpd and exporting 2.0 million bpd.

OPEC was also expected to press independent exporters such as Russia, Norway and Mexico to back any supply cuts needed later, OPEC President Abdullah al-Attiyah al-Attiyah said.

Two overnight refinery fires in Louisiana fueled today's price gains, strengthening concern that summer vacation driving demand could strain supplies.

U.S. fuel inventories have failed to rebuild after supply disruptions from a strike in Venezuela and ethnic strife in Nigeria drew down stocks. U.S. crude stocks are 11 percent below last year, while gasoline stocks are down 5 percent.

Government fuel stock figures on Wednesday are expected to show a small crude inventory increase in the week ended last Friday, a Reuters poll of oil market analysts showed.