Oil ticks up as Iran, Indonesia call for OPEC cut
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forbes.com-Reuters
Reuters, 04.17.03, 3:23 AM ET
SINGAPORE, April 17 (Reuters) - Oil prices crept higher on Thursday in quiet trade ahead of the long weekend holiday and an emergency OPEC meeting next week where producers will discuss possible supply restraints to avert a supply glut.
In the run up to the ministerial talks in Vienna on April 24, Iran warned an oversupply would lead to a collapse in oil prices if not checked, while Indonesia said it would ask OPEC to remove 1.5 to two million barrels of daily production.
U.S. light crude rose 22 cents to $29.40 a barrel, while London's Brent crude was up 23 cents at $25.25 a barrel.
Traders said dealings were expected to be muted ahead of the Easter holiday weekend. The New York Mercantile Exchange and the International Petroleum Exchange (IPE) will be closed on Friday and the IPE will remain shut on Monday.
Iran's Oil Minister Bijan Zanganeh on Thursday called on OPEC to reduce official production limits.
"We (OPEC) should consider cutting production to balance supply and demand in the market, especially in the second quarter," Zanganeh told reporters at an industry conference.
He said any reduction in supplies should be made from the group's official 24.5 million barrels per day (bpd) output ceiling. The 10 OPEC members bound by quotas are now pumping close to two million bpd above the official limits.
"There is an oversupply in the market, which if not controlled, will lead to a sharp price collapse in the long term," Zanganeh said.
Indonesian Mines and Energy Minister Purnomo Yusgiantoro said he would request that OPEC remove 1.5 million to two million bpd from the world market.
The International Energy Agncy, the energy watchdog for 26 industrialised nations, has urged OPEC to be cautious in any supply cut, saying that prices are still too high for firms to rebuild low stocks.
BUSH WANTS IRAQ U.N. SANCTIONS DROPPED
Oil demand usually dips in the second quarter after the winter heating spurt and before consumption of gasoline hits a peak during summer vacations.
The Organisation of the Petroleum Exporting Countries sharply ramped up production this year to cover supply disruptions from Venezuela, Nigeria and Iraq.
But officials now fear that prices, which fell 30 percent in one month, could come down further as demand drops off in the second quarter by about two million bpd.
Venezuelan and Nigerian output have largely recovered, while Iraqi crude exports could start to resume within a month, much earlier than expected if legal and administrative issues are ironed out at the United Nations.
U.S. President George W. Bush, who led the military campaign to oust Saddam Hussein, on Wednesday urged the United Nations to lift economic sanctions on Iraq.
But U.N. diplomats said an end to the embargo should depend upon the world body certifying that Iraq is free of nuclear, biological and chemical weapons, one of the reasons Washington gave for launching the war.
U.N. sanctions were slapped on Iraq after its invasion of neighbouring Kuwait in 1990. Its oil sales have been governed since 1996 by the U.N. monitored oil-for-food programme, which allows Baghdad to sell oil and use the proceeds to buy food, medicine and other civilian goods.
The U.S. military reckons it could get Iraqi oilfields pumping at two-thirds of pre-war levels within weeks, although resuming exports depends on creation of a political authority in the country.
Colonel Michael Morrow, adviser to U.S. forces chief Tommy Franks at Central Command in Qatar, said on Wednesday that output capability from Iraq's northern oilfields was expected to restart at 800,000 bpd in about four weeks.
Production from southern fields, where some sabotage took place, was expected to restart at 800,000 bpd in eight weeks.
Iraq was producing about 2.5 million bpd before the war.
OPEC production cuts coming, but how much? Return to quotas possible as `all options' on table
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April 16, 2003, 12:38PM
By DAVID IVANOVICH
Copyright 2003 Houston Chronicle Washington Bureau
WASHINGTON -- OPEC will consider slashing its crude production next week, fearing the quick war in Iraq could send crude prices nose-diving.
Oil prices edged closer to $30 a barrel Tuesday after oil ministers finally agreed to meet April 24 in Vienna.
The goal of this meeting is to rethink the Organization of the Petroleum Exporting Countries' production strategy for the coming months.
"All options" will be on the table, OPEC Secretary-General Alvaro Silva said.
Some OPEC watchers say the cartel could agree to cut production by nearly 2 million barrels a day, or about 7 percent, from current levels.
So far this month, the 10 OPEC countries whose output is controlled by production ceilings have been pumping 26.4 million barrels a day, according to the U.S. Energy Information Administration.
That's 1.9 million barrels a day more than their output quotas would allow.
The OPEC producers have been pumping a great deal of extra crude in recent weeks to offset the loss of nearly 2.5 million barrels a day of Iraqi crude production, which has been off line since the war started.
The OPEC countries had pledged to make up for any supply disruptions as a way to dissuade the United States and other industrialized nations from tapping their strategic petroleum reserves.
But the speedy U.S.-led victory in Iraq and the relatively minor damage inflicted on Iraq's oil fields have wiped out most of those war jitters.
And now OPEC members are asking whether the group's output is about to glut the market.
"I think they'll go back to their quota," noted John Lichtblau, chairman of the New York-based Petroleum Industry Research Foundation.
Michael Rothman, senior energy market specialist for Merrill Lynch in New York, argued that OPEC's current ceiling is too low, considering that petroleum inventory levels remain well below normal.
"I don't think the meeting is designed to implement a new policy but to signal to the oil market that they are not going to implode," Rothman said.
Seven of the OPEC members are currently pumping more than their quotas would allow. But Saudi Arabia, the cartel's largest producer and de facto leader, accounted for the bulk of that extra production.
Saudi Arabia, which had been producing only 8.1 million barrels a day in December, is currently cranking about 9.6 million barrels a day, its highest rate in 13 years and about 21 percent above its production limit.
It has ignored its quota because world inventories had dropped dangerously low with the lost production from Venezuela because of labor strife, plus the potential for lost Iraq production when war started.
Days before the fighting began, Kuwaiti officials had announced plans to shut in crude production near the Iraqi border to guard against attack. But fears that Iraq would lash out at Kuwait quickly dissipated. Kuwait is pumping full-out, producing an average of 2.45 million barrels a day this month, 25 percent above its ceiling.
The OPEC producers are concerned about overproduction because the second quarter is traditionally the weakest of the year for oil demand.
Winter is over, while the busy summer travel season has yet to begin. U.S. refineries usually use this period to build inventories, and stocks in the United States are extremely low.
Oil demand was already hampered by a slowdown in the world economy, while the war and the Severe Acute Respiratory Syndrome or SARS epidemic have taken their toll on world travel.
Since the start of the war, crude prices have dropped substantially, as oil traders realized their worst fears -- many oil fields in flames -- were unwarranted.
But the much-feared price crash has not occurred, as it did after the last Gulf War. On Monday, the OPEC basket of crudes fetched an average price of $25.35 a barrel, smack in the middle of the group's desired $22 to $28 price band.
But price hawks like Iran are fearful the United States intends to use Iraq's crude production to hobble the OPEC cartel. Even if other members do not subscribe to such fears, they realize OPEC must make room for the resumption of Iraqi exports.
Vice President Dick Cheney said last week White House officials hope to get Iraqi production back up to 2.5 million to 3 million barrels a day by the end of the year.
Many industry experts believe the new government could be exporting 1 million to 2 million barrels a day by the end of June, Lichtblau said.
But to do that, they'll have to get permission from the United Nations to market the oil.
"The legal issue at the moment is overriding any kind of physical problems," Lichtblau said. "They could start exporting oil, not immediately, but very soon.
During the years of economic sanctions, the U.N. Security Council has controlled Iraq's oil sales through its oil-for-food program.
The United States and Great Britain are poised to ask the United Nations to allow a new government in Iraq to use the proceeds to rebuild the country.
What is unclear is how or when the council will respond.
Venezuela Still Backs Overall OPEC Output Cut
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<a href=www.quicken.com>Dow Jones
Tuesday, April 15, 2003 09:42 AM ET
CARACAS (Dow Jones)--Organization of Petroleum Exporting Countries member Venezuela wants to keep pumping as much oil as possible even if, as expected, the group reduces output to bolster sagging world prices, a senior Venezuelan Oil Ministry official said Tuesday.
"We need to recover what we've lost but that doesn't mean we don't support OPEC's intention to stabilize the market," the official told Dow Jones Newswires on the condition of anonymity.
But " Venezuela has every intention to return to its quota as soon as lost revenue has been made up," the official said.
Venezuela's government claims output has now topped 3.1 million barrels per day - versus its current OPEC quota of about 2.8 million b/d - after being down as low as 150,000 b/d after a general strike that began Dec. 2 all but shut the vital oil industry. The government has said it lost about $7 billion due to the strike.
Former managers at state oil company Petroleos de Venezuela SA have put production at closer to 2.6 million b/d.
OPEC members are expected to meet April 24 in Vienna to decide whether to cut production.
-By Jehan Senaratna; Dow Jones Newswires; 58212 564 1339; jehan.senaratna@ dowjones.com
OPEC to discuss prices April 24 --Cartel to meet and decide whether to trim output or comply with quotas in order to meet $25 target.
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CNNMoney-Reuters
April 15, 2003: 8:43 AM EDT
LONDON (Reuters) - OPEC confirmed Tuesday that it will hold an emergency meeting April 24 in Vienna to discuss cutting supplies in response to a sharp drop in world oil prices.
Despite a halt in Iraqi exports due to the U.S.-led war on Baghdad, prices have slumped by 30 percent in a month on a rising tide of exports from U.S. ally Saudi Arabia and other cartel members.
"It's definitely the 24th," an OPEC spokesman said, clearing up uncertainty over possible dates for the meeting.
Algerian Oil Minister Chakib Khelil said Monday that OPEC could stop prices falling further simply by improving compliance with its agreed ceiling of 24.5 million barrels per day (bpd), as the cartel is now pumping some two million bpd above that.
Other members could push for a cut in formal quota limits.
The Arab-dominated cartel will also discuss the return of Iraqi exports after the war, although this is unlikely to affect quotas yet.
OPEC President Abdullah al-Attiyah said last week that oversupply on world markets already topped two million bpd, and could reach four million with the return of Iraq in the months ahead.
Countering this view, Algeria's Khelil said any decision by OPEC now should take into account an expected demand rebound in the summer which could see prices rise again.
Commercial oil stocks worldwide are well below normal levels due to a series of supply interruptions from Venezuela, Nigeria and Iraq, although they have shown some signs of recovery in recent weeks.
Despite the sharp fall in prices, OPEC's reference price is now hovering around OPEC's target level of $25 per barrel, having topped $33 last month.
Saudi Arabia stepped in to cover for the Iraqi stoppage, and now accounts for three-quarters of OPEC's output above quota. Its view will be crucial.
Oil industry think-tank, the Center for Global Energy Studies, said Saudi Arabia could even seek to retain most of its recent output surge by negotiating cuts on the basis of current output, instead of quotas.
This would provoke a storm of protest from other members, who are all keen to protect their market share.
When Iraqi sales do resume, analysts believe they will rise gradually and take several months to regain their pre-war level of 2.5 million bpd.
OPEC will probably give Baghdad freedom to pump at will until it reaches its historical quota level above three million bpd, which Iraqi experts expect to take several years.
Before Iraq's invasion of Kuwait in 1990, Baghdad had the same quota level as Iran at 3.1 million bpd. Iran's quota has since risen to 3.6 million.
U.S.-backed Iraqi exiles formulating postwar oil policy for Iraq think it will take three or four years to regain output capacity of 3.5 million bpd, according to briefing papers obtained by Reuters.
Oil Ticks Lower, Awaits OPEC
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<a href=reuters.com>Reuters, Tue April 15, 2003 01:20 AM ET
SINGAPORE (Reuters) - Oil prices ticked lower on Tuesday but kept a narrow trading range as traders weighed the possibility of a reduction in OPEC supplies with abnormally low fuel stocks in many consuming countries.
U.S. light crude fell 14 cents to $28.49 a barrel, while London's Brent crude lost 15 cents to $24.70 a barrel.
Traders are waiting to see whether the OPEC producers' cartel will curb crude flows to the world market at an emergency meeting proposed for either late April or early May.
The Organisation of the Petroleum Exporting Countries fears that prices, which sank 10 percent after the start of the war in Iraq, could tumble to $20 or below during the remainder of the second quarter when oil demand usually drops off by about two million barrels per day (bpd).
OPEC has ramped up output by almost two million bpd over its official production ceiling to cover supply disruptions in Venezuela, Nigeria and Iraq.
It now fears that with Venezuelan and Nigerian production making a recovery, supply will sharply outpace demand, leading to big builds in stock levels and downward pressure on prices.
The winding down of the war in Iraq with its oil infrastructure largely undamaged also has raised speculation that crude exports from the Gulf producer could resume in a few months although administrative and legal issues may delay physical barrels from hitting the market.
Iraq exported about 1.7 million bpd of its daily output of roughly 2.5 million barrels before the war to oust Saddam Hussein.
OPEC officials have said the group might agree to tighten compliance to current production quotas, or cut the group production limit of 24.5 million bpd.
"While the market continues to prevaricate over the direction of the next move, we move closer to likely OPEC action, which reduces the risk of a sharp downside move," said Sydney-based oil analyst Simon Games-Thomas, who pegged $30 a barrel as "fair value" for crude at the moment given low Western oil stocks.
"The current discount reflects relief that Iraq's oil infrastructure is generally intact and concerns that there will be an early return to export status, which will threaten the status quo and cause a sell-off in oil prices."
WATCHDOG WARNING
The International Energy Agency (IEA), which acts as a watchdog for 26 industrialized nations on energy issues, warned producers last week that any cut to supplies would be imprudent for the time being despite a backlog of OPEC oil on the water waiting to hit consumer shores.
Crude inventories in the United States, the world's biggest oil user, have been running this year at a big deficit to 2002 levels and close to 270 million barrels, which the government considers the minimum needed to keep the nation's refineries operating smoothly.
Stocks of gasoline are also lower than at the same time in 2002, and some analysts fear that if refiners do not start to replenish tanks soon, there could be a supply crunch when motor fuel is in peak demand in the summer.
The government's Energy Information Administration (EIA) will release its weekly report on the health of U.S. fuel stocks on Wednesday. Traders closely monitor the EIA data for a snapshot of overall demand for oil.
Six analysts polled by Reuters predicted crude stocks to grow by 2.5 million barrels in the week to April 11, with gasoline inventories rising 1.55 million barrels.