APRIL 1, 2003 Business Week WAR IN IRAQ

If anything, says Abdullah bin Hamad Al Attiyah, the producing nations' biggest fear is a post-war price collapse In the run-up to the war in Iraq, crude oil prices shot to levels not seen since the last Persian Gulf crisis. Since the war began, however, prices have dropped back to earth. Crude oil at the New York Mercantile Exchange is hovering close to $30 a barrel, a far cry from the nearly $40-a-barrel levels seen a few weeks ago. Indeed, according to Geneva-based energy consultancy Petrologistics, the cartel boosted production by 1.3 million barrels a day in March.
Still, with the war's course so uncertain, oil prices are likely to see volatile times in the days and weeks to come. What lies ahead? On Mar. 27, Abdullah bin Hamad Al Attiyah, the president of OPEC and Qatar's Energy Minister, spoke to BusinessWeek's Laura Cohn in Doha, Qatar, about the adequacy of energy supplies, the mood at OPEC, and what will happen to oil prices after the war. Following are edited excerpts of their conversation: Q: What are you doing to ensure that there will be adequate energy supplies? A: More oil has been produced and brought to the market. That's why the price has dropped dramatically. If you ask yourself, why has the price dropped very dramatically -- almost more than $7 in 10 days? There's more oil in the market, and the world can absorb it. Also, don't forget Venezuela is coming back [into the market as a producer]. If you go back to December [with strikes and unrest in Venezuela], we saw 3 million barrels suddenly disappear...[but it's] coming back. Now, people are concerned about Nigeria, but this is only temporary. Q: Iraq has asked other Arab nations not to increase their production. What's your reaction to that? A: They had the right to ask. Iraq is a member of OPEC, and anyone as a member of OPEC has the right to discuss [anything] with other members. But OPEC and major oil producers are working together to stabilize the oil markets. We are not aiming to produce just to produce. We aim to stabilize the oil market. We aim to seek a balance between demand and supply. OPEC is an international organization. It is not a political organization. Q: How often are you in consultation with your OPEC colleagues? A: Not daily, but we are in consultation all the time. I do a lot of consultation with my OPEC colleagues, with non-OPEC colleagues. We try to see how to manage it. In reality, oil prices are always underestimated. From 1985-2000, the average price of a barrel of oil was only $18. Sometimes it's exaggerated. When oil prices go to $30, consumers start crying. But when you take the average of the last 15 years, [you see] you shouldn't blame oil producers. Q: Do you have any plans for an emergency OPEC meeting? A: Why should we meet? There is no shortage of oil. The price has dropped. So it's not [like] we have an agenda that would attract us to meet. If we have something to push us, yes. If there's a big shortage of oil, prices skyrocket, then we [will] have something to say. My main concern is that after the war, we will see the oil price collapse. Demand and economic growth now are not good. The world is in recession, and this is reflected in consumption. This is a story we have to be very careful about. Q: If the war drags on, won't oil prices rise again? A: I cannot predict what will happen. Some analysts said once the war starts, oil will reach $100. Do not believe analysts. When I went to America for school in 1970, there was a very famous song [by The Undisputed Truth] that said "Smiling faces sometimes they don't tell the truth." Analysts never give the truth. All scenarios are open. This is my concern. Q: In your view, why did the price of oil go up so much before the war started? A: It was because of the speculators. They hijacked the oil market. We always said there's a high war premium. It was more than $7. Now the market has become more pragmatic.

By MATHEW INGRAM Globe and Mail Update

If you think the stock market has seen a dramatic reversal of fortune, with a burst of optimism followed by a sharp decline, that's nothing compared with what oil has gone through. After rising to 10-year highs in the lead-up to war, crude tanked by more than 25 per cent after the shooting began, but has since made back more than half that ground — and it's not just bad news on the war front that has traders nervous.

What drove crude up close to the $40 (U.S.) a barrel level in the weeks leading up to the war was fear about a replay of the Persian Gulf war, in which Iraqi forces set fire to hundreds of Kuwaiti oilfields and threw a massive wrench into global oil supplies. When those fears were dispelled by the quick capture of Iraq's major oilfields and the war as a whole appeared to be going well, crude sank back to the mid $20s.

Have those fears come back to the forefront for some reason? No. Although the northern Kirkuk fields are still vulnerable, the majority of Iraq's oil production remains in the hands of the U.S.-led coalition, and U.S. forces continue to control the country's access to the Persian Gulf. So far, the war hasn't spilled over into Kuwait, Iran or Israel either, another fear that helped push pessimism higher.

On top of all that, OPEC — and especially Saudi Arabia, the major swing producer in the global crude cartel — helped pop the oil-price balloon when it said that it was willing and able to pump more to make up for the effect of war. Saudi Arabia alone said that it was pumping about one million barrels a day more than its previous quota, and that it had stockpiled about 55 million barrels. So why has crude climbed again?

Part of the rise is likely as a result of a feeling that the war isn't going as well as it was, and that this will keep Iraqi oil out of the market for longer than expected. But there's more to it than that. In the same way that the stock market has other things to worry about, including weak corporate spending and high unemployment, the oil market has other problems on its mind too — such as supply problems.

In the runup to war it was supply disruptions in Venezuela that were weighing on the minds of oil traders and helping keep prices high, as a labour dispute paralyzed the Latin American OPEC producer's output. As those concerns were dealt with and the war looked to be going well, crude prices began to subside — and now, just as those hopes have been proven too optimistic, the oil market confronts problems in Nigeria.

As of Monday, more than 40 per cent of Nigeria's previous production of 2.2 million barrels a day had been shut down as a result of civil unrest in the oil-producing western Delta region. There have been a series of violent uprisings by ethnic Ijaw militants, and several companies including Royal Dutch Shell have been reluctant to send workers into the area. To make matters worse, a major trade union is threatening a strike, which could further paralyze that country's crude oil production.

On top of all that, OPEC members are producing at or close to their peak production levels, and oil inventories in the United States are 7 per cent below the levels they were at a year ago. As a result, most analysts believe crude is likely to stay in the $30 range, after climbing too high before the war and falling too low afterward. As one trader said: "Prices appear to be entering a sideways phase, which will last until there are definitive developments." In other words, stay tuned.

E-mail Mathew Ingram at mingram@globeandmail.ca

Look for exclusive Mathew Ingram commentary at GlobeInvestorGold

Source

Vienna, March 31, IRNA -- The price of OPEC's basket of seven crudes fell to 25.91 dollars a barrel last week, compared with 28.42 dollars in the third week of March.
According to figures released by the OPEC Secretariat here
today, the price of the basket so far this year (up to 27 March) has
averaged 30.57 dollars a barrel.
For the month of February, the basket price averaged 31.54 dollars a barrel, as opposed to 30.34 dollars in January, and 28.39 dollars in December 2002.
For the fourth quarter of last year, the basket price averaged
26.83 dollars a barrel, as against 26.09 dollars in the third quarter. The price of the basket in 2002 averaged 24.36 dollars a barrel, compared with 23.12 dollars the previous year.
The OPEC basket comprises Algeria's Saharan Blend, Indonesia's Minas, Nigeria's Bonny Light, Saudi Arabia's Arabian Light, Dubai of the United Arab Emirates, Venezuela's Tia Juana, and Mexico's Isthmus crude.
MN/AH/AR

<a href=www.indianexpress.com>Web

With the prospect of a big hike in its oil bill, India has a stake in OPEC acting responsibly

One way of tracking the coalition force’s progress in the current Gulf war is by observing the gyrations in crude oil prices. Within hours of US President George W. Bush’s 48-hour ultimatum to the Iraqi regime, the global oil market responded with a 10 per cent drop in the $35-plus per barrel price that had been ruling for months.

Of course, the oil sector strike in Venezuela and falling US inventories had also contributed towards a tighter market, but most of the price hike was due to the uncertainty of whether there would be a war or not.

Once the war began, crude prices plunged by almost 25 per cent on the belief that it would be swift and painless—for the Americans. But now that the Iraqi troops have proved to be more resilient than expected and the verdict is that the conflict will be more drawn out than hoped for at first, oil prices have begun nudging up once again to approach the $30 per barrel mark, aided and abetted to some extent by the upheaval in the Nigerian oil sector.

And if the war indeed goes beyond a month and the damage to the allied troops more extensive than anticipated, the pre-war concerns of prices hitting the upper forties or even fifties per barrel may yet be borne out.

With the news of Iraqi oil being set ablaze by their troops, the major oil importing countries, who had begun to breathe a little easier once prices began dipping, are back to calculating the impact of high oil import bills on their economies. Though the eventual outcome of the war is not in any doubt, the duration and intensity of the conflict will have a bearing on the market.

If Iraq’s oil sector, affected by a decade of sanctions, suffers further damage, it will take years of rebuilding, even on a war footing, before it can be brought back to its pre-1991 levels of production.

Despite reassurances of uninterrupted supplies by the Organisation of Petroleum Exporting Countries (OPEC) and its promise of making good any loss in Iraqi crude output, there are continued reservations about the cartel’s ability—and intention—to pump additional oil indefinitely to cool the market, given the cartel’s propensity to manipulate production to keep prices high.

Part of Washington’s interest in Iraqi oil is the wish to see OPEC’s wings clipped. With the prospect of a 20 per cent hike in its oil import bill from last fiscal’s Rs 67,000 crore, and every $1 per barrel adding a further Rs 3,000 crore, it would be in India’s interest if the cartel could be made to act more responsibly. One way of doing this is to ensure that a post-war Iraq is kept out of OPEC and its 112 billion barrels of reserves made available to usher in an era of cheap oil.

<a href=www.middle-east-online.com>Full Story By Robert Koch - VIENNA

The Organisation of Petrolium Exporting Countries could move rapidly to reduce production of crude if the price falls below 22 dollars (20.50 euros) a barrel, a source close to the organisation said here on Thursday, on condition of anonymity.

"If the price of a barrel drops under 22 dollars, below the price band, the ministers will not wait until their next meeting in Doha for considering a reduction of production," the source said.

"Despite the ongoing war in Iraq, we feel there is enough oil on the market. We even feel there might be too much."

Oil producers feared the arrival of warmer weather in the northern hemisphere could lead to over-supply and hit prices, the source added.

"With the summer season, we fear that demand will drop. Prices might rebound - it will largely depend on the ongoing military operations in Iraq."

The comments came one week after OPEC Secretary General Alvaro Silva Calderon reiterated the cartel's pledge to make good any oil shortage arising from the Iraq conflict, if necessary by increasing production.

Calderon said OPEC was facing an "emergency situation, and for that reason we have to use spare capacity if it is necessary".

The price of reference Brent North Sea crude oil for May delivery rose 1.1 dollars per barrel to 26.38 dollars in early deals Thursday.

OPEC's stated target is to maintain oil prices within a range of 22-28 dollars a barrel.

The source said oil investors are keeping a close watch on developments in Nigeria, where ethnic tension has for 10 days been threatening the oil industry of the biggest African producer.

More than 800,000 barrels has been slashed from Nigeria's daily oil production, more than a third of its exports, in the two weeks since an uprising by the Ijaw ethnic group triggered bloody clashes in the Niger Delta.

Nigeria is the world's sixth largest exporter of crude oil, with an OPEC quota of 2,018 million bpd.

The source admitted that "some people" had thought of using oil as a "weapon" in solidarity with Iraq, but he said this would not happen.

"Some people have raised this possibility," he said, "but if this weapon were to be used, for example as a boycott of the United States or Britain, it could backfire on those using it" by destabilising the market.

Iraq's ambassador to Venezuela, Taha El Abassi, on Wednesday called on oil producing countries to stop exporting to the United States and Britain, but many of the countries are unlikely to heed the call as they are US allies in the war.

Before the war began last Thursday Iraq was allowed to export two million barrels of oil per day under the oil-for-food agreement it has with the United Nations, but this deal was suspended on March 18.

OPEC has scheduled an extraordinary ministerial meeting in Doha, Qatar on June 11.