Posted on Sun, Apr. 20, 2003 BRUCE STANLEY KansasCity.com-Associated Press

LONDON -By boosting production ahead of the war in Iraq, OPEC succeeded in allaying concerns about a possible oil shortage once the shooting began. Yet instead of celebrating its achievement, the producers' cartel fears the world is now awash in crude and at risk of a ruinous price crash.

The Organization of Petroleum Exporting Countries has called an emergency meeting for Thursday to assess postwar conditions in the oil market, with a view to slashing output to bolster sagging prices. OPEC President Abdullah bin Hamad Al Attiyah has said he believes the world is oversupplied by 2 million barrels a day at a time when seasonal demand normally slips to its lowest level of the year.

However, energy analysts warn that crude inventories in major importing countries are still alarmingly low. They argue that OPEC must be careful not to curb production so much that refiners face low stocks of oil as they head into summer, the peak season for gasoline consumption.

"This whole idea that there is a tidal wave of overproduction that's going to sink prices is just wrong," said Adam Sieminski, an oil price strategist at Deutsche Bank in London. "Inventories are extremely low, and Iraq is not producing, so there is no overproduction."

OPEC has timed its meeting in Vienna, Austria, to assess market conditions in the immediate aftermath of the war. This won't be easy, and some analysts argue that such a meeting is premature.

No one knows when Iraq, historically a large producer, will be able to resume its crude shipments. Nigeria and Venezuela, meanwhile, are still clawing their way back to production levels they enjoyed before social unrest and a national strike, respectively, dented their output.

Yet OPEC, which pumps about one-third of the world's oil, is eager to show that it is in control of - or at least closely monitoring - a tempestuous market.

OPEC's members agreed in January to a production target of 24.5 million barrels a day. They soon were busting their quotas, to profit from the high prices preceding the war as much as to reassure markets that supplies would be plentiful in spite of any hostilities.

OPEC earned plaudits from the United States and other importers for its proactive, and unofficial, production increase. By some estimates, OPEC's 10 members excluding Iraq were pumping an average of 26.2 million barrels a day last month - 7 percent above their quotas.

But oil prices tumbled as the conflict unfolded. By the time the fighting was over, futures contracts of U.S. light, sweet crude had fallen by more than one-third, from a high for the year of $39.99 a barrel reached on Feb. 27.

OPEC worries that prices may have farther to fall.

"I do not think there is any necessity for OPEC to carry on with its excess production. We should consider a cutback in production to balance supply and demand, especially in the second quarter," Iranian Oil Minister Bijan Namdar Zangeneh said Thursday in Tehran.

Many analysts accept that a production cut may be a foregone conclusion.

Kevin Norrish, head of commodities research at Barclays Capital in London, said OPEC would need to rein in output by 1 million to 1.5 million barrels a day to keep prices from sliding below $22 a barrel - the bottom end of the group's targeted price range.

Leo Drollas, chief economist of the London-based Center for Global Energy Studies, suggested that a much smaller cut of 650,000 barrels a day would suffice to stabilize prices.

However, crude inventories are unusually low for this time of year, and a deep cut by OPEC would make it harder for importers to build them to comfortable levels.

Claude Mandil, head of the International Energy Agency - a watchdog agency for the world's leading importers - warned last week that a possible cut in output wouldn't actually take effect until demand starts to rise in the third quarter.

Replenishing oil inventories is a priority, he added. U.S. crude stocks stood at 281 million barrels at the end of the first quarter, or nearly 43 million barrels below the average for the previous five years, according to the U.S. Department of Energy.

For Paul Horsnell, head of energy research at J.P. Morgan, the implications for OPEC's representatives in Vienna are clear.

"What they should do is nothing," he said.

Aside from policy issues, OPEC must wrangle with at least one glaring question of protocol: Who will represent Iraq at this week's meeting?

Iraq, a founding member of OPEC, hasn't participated in the group's production agreements since the 1991 Gulf War, but it normally sends at least one representative to OPEC's meetings.

With the toppling of Saddam Hussein's government, it's not clear who, if anyone, will speak for Iraq this time.

Iraq's acting ambassador to Austria, the cultural attache at Iraq's embassy in Vienna, served this function at OPEC's previous two meetings. Because the Austrian government still recognizes the embassy as Iraq's official representation in Austria, an OPEC source suggested that the attache, Khalid al-Shamari, may do so yet again.

<a href=www.riyadhdaily.com.sa>RiyadhDaily.com Economy   Sunday - 20 April 2003 Tehran [Agencies].............................. Iran wants a reduction in OPEC oil output from May 1 only if there is an urgent market need for one, Oil Minister Bijan Namadar Zanghaneh said Saturday in an apparent toning down of earlier calls for a second quarter cut. "A May 1 date for a cut in OPEC production would be too soon unless there is an emergency situation," Zanghaneh told reporters on the sidelines of a Tehran oil and gas conference. On Thursday the minister had caused jitters on world oil markets by suggesting that Iran would push for an immediate cut at the OPEC cartel’s next meeting in Vienna on Thursday. "We need a decrease in production... starting the second quarter of 2003," Zanghaneh said then. "Currently there is a surplus in the oil market, and if it is not controlled in the long term, oil prices will slide." Iran Nominates Aide to Head OPEC Iranian Oil Minister Bijan Zanganeh confirmed on Saturday he had proposed his deputy for OPEC’s top job. Asked by reporters in Tehran whether he had nominated Deputy Oil Minister Hadi Nejad Hosseinian, Iran’s former ambassador to the United Nations, for the post of secretary-general, Zanganeh said, "Yes." Venezuela’s Alvaro Silva is currently serving as OPEC Secretary-General, having replaced fellow Venezuelan Ali Rodriguez in June 2002. Rodriguez had served just 18 months of a three-year term at the helm of the 11-member producer group before being chosen to run state oil company Petroleos de Venezuela (PDVSA). The former Venezuelan oil minister shifted into the secretary-general position in January 2001 to settle an 18-month deadlock in a battle between Saudi Arabia, Iraq and Iran. OPEC rules dictate that the appointment must be unanimous. Meanwhile, Iranian oil minister stated that the possibility of Iraq leaving the Organization of Petroleum Producing Countries (OPEC) would not be in the in the long-term interests of the cartel members, Iran’s Oil Minister Bijan Namadar Zanghaneh said on Saturday. "It is in Iraq’s interests to stay within OPEC", said Zanghaneh at the closure of an oil and gas conference in Tehran, but he conceded that if it were to leave, "it would not have any influence on the market." However, if Iraq were to quit OPEC it would hurt both the country and the group as a whole, he said. Iraq would have less influence on the world market and the long-term interests of other OPEC members would be harmed, according to the minister. Some analysts are predicting that Iraq, now under the control of US forces, would leave OPEC to rid itself of the system of export quotas assigned by the cartel to its members, thus flooding the market with more oil and bringing down prices. Zanghaneh said he would urge a cut in oil output at OPEC’s next meeting in Vienna on Thursday only if such a cut was needed, in an apparent toning down of a stronger statement favoring a cut two days ago that pushed oil prices higher. The June Brent crude-oil futures contract rose 86 cents, or 3.4 percent, to 25.88 dollars a barrel on the International Petroleum Exchange in London on Thursday. The market is closed until Tuesday for the Easter holidays.

<a href=www.theage.com.au<theage.com.au Sunday 20 April 2003, 8:05 AM

The Organisation of Petroleum Exporting Countries (OPEC) must do something about the surplus two million barrels per day (bpd) that had come onto the market since the war in Iraq ended, the group's president said.

"There is a surplus of two million bpd that we have to deal with," Abdullah bin Hamad al-Attiyah told reporters at the start of a visit to Oman.

He said OPEC's next meeting at its Vienna headquarters on Thursday, to discuss a possible output cut, would "examine the market situation and take the measures necessary to restore order".

"OPEC has done everything possible to maintain the balance between supply and demand, having increased its production to prevent any crisis," said Attiya, who is also Qatar's oil minister.

He was referring to the US-led war on Iraq launched on March 20, and prior to that ethnic unrest which cut Nigeria's oil output by around 200,000 barrels a day, as well as an opposition strike which battered Venezuela's petroleum industry.

OPEC, whose production ceiling is fixed at 24.5 million bpd for the member countries - except Iraq - said late in March it could announce at next week's meeting that it would reduce output by two million bpd. ©2003 AFP

Times On line April 18, 2003 Foreign Editor's Briefing by Bronwen Maddox

COULD the war in Iraq prove to be the death of Opec? The conflict has already been blamed for threatening the demise of the United Nations, the European Union and the North Atlantic Treaty Organisation; to add the Organisation of Petroleum Exporting Countries to the list hardly seems ambitious.

It would be premature to write off the oil producers’ cartel, but all the same there is an urgency about its predicament. Opec is pleased with itself — and worried. Throughout the war, it kept oil supplies flowing and the price more or less stable. But with the war’s end, it has called an emergency meeting for Thursday to head off a glut and a sudden collapse in the price.

Even if it negotiates this month’s obstacles, Opec’s problems will get worse, and in part this is down to this weekend’s elections in Nigeria. But there are two other reasons why the world might look forward to lower oil prices in the coming years, and they are labelled Iraq and Russia. Opec’s ability to counter these three issues is small: talk of the end of the cartel may be melodramatic, but we are moving into an era when its power is almost certain to wane.

Before the war there were plenty of warnings that oil prices would rocket, and so they did. Then they came down again, as the predicted scenes of burning Iraqi oil wells failed to materialise.

Opec can pride itself on managing to keep production levels steady during the conflict, making up for the sudden stoppage of Iraqi oil. Saudi Arabia fulfilled its role as the “swing producer”, making up the shortfall, and the war coincided with Venezuela’s unexpectedly early return to something like stability.

But having risen to the occasion of the war, Opec must now persuade its members to cut back or risk a collapse in oil prices, as happened after the 1991 war. The cartel is producing about two million barrels a day too much, or about a tenth over, its own officials have suggested. Yet Opec has always been better at getting its members to pump more than it has at convincing them to cut back.

As the US Department of Energy put it in a monthly report last week: “Opec’s success in offsetting supply losses kept oil prices from spiking once the war in Iraq began. However, this same success has now turned to concern that oil prices, which have dropped by almost a third as market worries over the situation in Iraq eased, risked falling further.”

Not everyone agrees. The International Energy Agency argued this week that the “glut” was an illusion, that developed countries’ stocks of oil are low and that Opec had no reason to cut production. But the nervousness of the markets suggests that Opec may well be tempted to go ahead.

As the cartel well knows, even if it overcomes the hurdles of the next few months, there are good reasons why it will be difficult to keep propping up the price.

Iraq itself may prove hardest to control. It would be overdoing the conspiracy theories to suggest that the US intended to destroy Opec with this war. But to pay for Iraq’s reconstruction, the country needs to sell as much oil as possible.

Every plan for its renaissance aims to treble its production up to Saudi Arabian levels of between seven million and eight million barrels a day. Any exhortation by Opec to hold back is likely to get short shrift from the new government in Baghdad; the cartel can console itself only that this will not happen for several years.

Then there is Russia, firmly outside the cartel and, to judge by past experience, largely immune to its pleas. Opec can, of course, try to persuade Russia that a high oil price is in its own interests and that it should therefore restrain production. Moscow would acknowledge that if the price does slip too low then the exploration and development of new fields will not happen. But in practice Moscow needs the revenues: it will continue to pump as much as it wants, and if Opec’s own restraint manages to keep the price up, so much the better. The effect of the cartel’s attempts at persuasion has been close to zero.

Finally, there is Nigeria. An Opec member, it is the fifth-largest of the US’s oil suppliers, and the Bush Administration, catching its breath after the war, has suddenly taken notice of this weekend’s elections. American policy has been to support the present Government of President Obasanjo and to hope for something like stability, particularly regarding Nigeria’s efforts to hold the Muslim north and the Christian south together.

True, the past month has not been stable. Violent ethnic unrest in the oil-rich Delta region halted about one third of Nigeria’s oil exports. Optimists, including foreign oil company investors, hope that the violence was largely precipitated by the elections. But there are still open sores that need addressing, particularly the complaint of the ethnic groups of the Delta, who are mostly excluded from its wealth.

But a new government is almost certain to want to step up oil production: that, presumably, is the basis on which oil companies have been investing. It has already boosted capacity to about 2.5 million barrels a day, half a million more than the level set by Opec.

The question for Opec is whether it legitimises this, turns a blind eye, or contests it, with the risk that Nigeria will walk out the door.   Contact our advertising team for advertising and sponsorship in Times Online, The Times and The Sunday Times. Copyright 2003 Times Newspapers Ltd. This service is provided on Times Newspapers' standard Terms and Conditions. Please read our Privacy Policy. To inquire about a licence to reproduce material from The Times, visit the Syndication website.

Forbes.com-Reuters, 04.17.03, 11:06 AM ET By Jonathan Leff LONDON, April 17 (Reuters) - Algeria's prolific Hassi Berkine oil basin may further boost production growth this year as leading foreign investor Anadarko expands infrastructure beyond initial plans, a top manager said. While the Ourhoud mega-find in the Saharan Desert will stay at a plateau 230,000 barrels per day (bpd), on target for next month, the Hassi Berkine South (HBNS) facility capacity may be pushed over 300,000 bpd, Anadarko's Algerian manager Rex Alman told Reuters in an interview. "We think we can handle more there with some de-bottlenecking. We could bring on stream the new discoveries within the year," he said. Anadarko, Algeria's leading foreign investor, has made two new finds this year near the HBNS centre, which was commissioned last year and has already reached capacity. Alman declined to say how much additional capacity could be added at the facility. Anadarko is also planning another or four exploration wells in Block 404, in which the foreign investor group it leads holds 49 percent. Its partners are Italy's ENI and Danish Maersk, each with a quarter of the Anadarko Algeria Comp. Sonatrach holds 51 percent of the block's equity. "This is our backyard now, it's a core area," Alman said. HBNS and Ourhoud are tied into Algeria's trunkline with a 30-inch (76-cm) pipeline, indicating capacity of 600,000 bpd up to 750,000 bpd, more than sufficient for the estimated 530,000 bpd plateau output from the two facilities. Other export bottlenecks are being unclogged by Sonatrach, which is commissioning a new pumping station to help boost flows from the Berkine basin, Alman said. They are also in the process of constructing a new export pipeline from Haoud el Hamra to the port of Arzew. Alman said there had been some production constraints earlier this year due to infrastructure improvement and a more than week-long bout of bad weather on the Mediterranean coast.

OPEC ISSUE LOOMS But the main obstacle for Algeria is not infastructure but politics -- the north African nation is pumping nearly 50 percent over its official 782,000 bpd OPEC limit. Most of that capacity is less than a year old, as Algeria's own production of some 700,000-800,000 bpd had plateaued until the HBNS and Ourhoud fields came onstream. So far the extra oil has not been a major issue -- between Venezuela's strike last year and the stoppage of Iraqi oil last month, OPEC has been pumping practically at will. But an attempt to rein in production is expected at next week's cartel meeting. Alman would not be drawn to comment on whether Sonatrach or the foreign partners would be required to take the brunt of cutbacks that most analysts now believe are necessary. Algeria's low cost of development for the massive, on-shore Saharan fields should help ease the pain of any constraints on production, he said.

OURHOUD IMMINENT, BLOCK 208 YEARS OFF Alman said the Ourhoud field, where the last of three trains came onstream in February, should reach capacity over the next month or so. Ourhoud has an estimated 2.3 billion barrels of oil in place, with more than half recoverable. The field, covering three blocks, has been monatised between the three joint-venture groups: Anadarko 37.5 percent, Cepsa 56.8 percent, Burlington 5.7 percent. Anadarko's next major developoment is set for Block 208, to the south of the current facilities, which is expected to produce around 100,000 bpd no sooner than 2007, Alman said. And exploration activities are set to continue in two other recently acquired blocks -- 406B and 403 -- at the end of this year and later next year, respectively.