biz.yahoo.com Thursday March 20, 4:50 pm ET

NEW YORK (Reuters) - World oil prices extended a week-long slump to set new three-month lows on Thursday as the United States launched a widening offensive on Iraq and dealers predicted an easy victory for Washington.

Prices swung wildly during the day on reports, denied by Baghdad, that three or four oil wells were on fire in the south of the country.

OPEC (News - Websites)exporters have said they could fill any supply gap resulting from the conflict in the oil-rich Gulf, and that markets were already well supplied. The West's energy watchdog, the International Energy Agency (IEA), said it saw no reason to release emergency stocks.

U.S. crude futures for May (CLK3) delivery fell $1.24 to $28.12, touching its lowest price since mid-December. Benchmark Brent crude oil fell $1.25 to $25.50 per barrel in London, after having touched a three-month low of $25.30.

Oil has shed a quarter of its value in the last week on a massive bet by investment funds that the war will end quickly, without causing major damage to oil installations or supply disruptions.

"The war premium is diminishing on a growing certainty that coalition forces will prevail," said Peter Gignoux, head of the London energy desk at Salomon Smith Barney.

Hours after U.S. cruise missiles hit targets in Baghdad, officials in neighboring Kuwait said oil output was normal, despite two Iraqi missiles hitting the north of the country.

Oil tanker traffic from the Gulf, which provides 40 percent of world oil exports, was also running smoothly, shippers said.

Market assumptions of limited damage to oil installations were challenged by earlier reports that three or four oil wells were on fire in southern Iraq, where half the country's oil is produced.

Defense Secretary Donald Rumsfeld said he had indications Iraq may have set fire to several wells, but Reuters eyewitnesses said there were no signs of fire at Iraqi oilfields close to the border with Kuwait.

Iraq has around 1,100 wells in total, analysts said.

Iraq suspended oil exports from its southern fields earlier this week, when United Nations inspectors left the country. Limited exports continued on Thursday from a pipeline to the Turkish Mediterranean.

OPEC TO FILL SHORTFALL

The Organization of the Petroleum Exporting Countries has reassured consumers that it was ready to tap its spare capacity to make up for any shortage from Iraq, but said markets were already well supplied.

"We are not thinking of any increase in production," said OPEC President Abdullah al-Attiyah. "Oil prices are heading downwards. This shows there is more oil in the market than the market can absorb."

Saudi Arabia, the world's biggest exporter, said its oilfields and export terminals were running normally and it was ready to pump more oil to stabilize markets.

Riyadh has already ramped up production well beyond nine million barrels daily, above an OPEC quota of eight million.

The IEA said there was no need for industrialized nations of the West to release emergency stocks as it was confident OPEC could cover the shortfall.

"At the precise hour we speak, I think it is not necessary (to release stocks)," IEA executive director Claude Mandil told Reuters. "We had a very strong statement from OPEC, which has said they will ensure any shortfall and we are confident they will do their best."

The IEA, which oversees some four billion barrels of stocks in 26 industrialized countries, said a release would become necessary only in case of a shortage that could not be covered by OPEC.

It also ruled out any unilateral reserves release by any one member, saying key importers the United States, Japan and South Korea all shared its view that a stock draw was not necessary.

reuters.com Tue March 18, 2003 11:34 PM ET

SINGAPORE (Reuters) - Oil prices rose on Wednesday, climbing after four days of steep losses that knocked more than 15 percent off a barrel of crude as traders awaited the outcome of a U.S.-led invasion of oil exporter Iraq.

U.S. light crude CLc1 climbed 63 cents to $32.30 a barrel following Tuesday's nine percent decline, which took prices to the lowest level in nine weeks.

London's Brent crude LCOc1 jumped 75 cents to $28.00 a barrel after dropping 7.6 percent in Tuesday's sell off.

Crude markets tumbled $5.50-$7 in the last four trading days as dealers bet on an easy U.S.-led victory over Iraq and minimal disruption to Middle East crude flows, which make up about 40 percent of global oil trade.

The 48-hour ultimatum, delivered late on Monday by President Bush to Iraqi leader Saddam Hussein, to leave Iraq or face war, pushed prices even lower with traders expecting a military strike in the next few days.

The U.S. deadline for Saddam to leave stands at 8:15 p.m. EST Wednesday.

Saddam rejected Bush's demand for him to go into exile and appeared on Iraqi television to declare his country was ready to repel any invasion that could start in less than 24 hours.

Baghdad denies U.S. allegations that it has built stocks of biological, chemical and nuclear weapons.

"The fall in crude indicates the market is looking beyond war. People are not expecting Saddam to have a scorch-earth policy. This is saying war is going to be short," said Han-Pin Hsi, oil and gas equities analyst at Deutsche Bank in Hong Kong.

UPSIDE RISKS REMAIN

Anticipation of a military strike in Iraq, which exports about two million barrels a day of crude, and possible wider disruptions to crude supplies from other Middle East producers, drove U.S. crude close to $40 in February, a whisker below the record of $41.15 set in the build up to the 1990-1991 Gulf War.

During the Gulf War, prices dropped from over $30 to barely $20 when U.S.-led forces launched their early 1991 offensive to expel Iraqi forces from Kuwait and it became clear Iraq would not harm oilfields in Saudi Arabia, the world's top exporter.

Analysts warned, however, that upside risks remained if Iraq should torch its own oilfields or if the conflict was drawn out.

"If the threat to blow up oilfields is carried out, we would see a savage spike to the upside. We would see sharp price rises probably out to two years forward," said Sydney-based independent oil analyst Simon Games-Thomas.

TEST OF OPEC'S LIMITS

An invasion would almost certainly close Iraqi crude output and southern neighbor, Kuwait, may also be forced to shut some fields near the border with Iraq.

Iraqi exports have already slowed substantially because international oil traders are unwilling to assume the risk on uncertain supplies.

A cold northern winter and prolonged supply hitch from Venezuela have drained commercial stockpiles to historic lows.

Official figures due for release later on Wednesday are expected to show a slight increase of two million barrels in U.S. crude stocks, which are at lows not seen since the mid-1970s and below the 270-million barrel mark that the government considers the minimum for the smooth operation of U.S. refineries.

The OPEC oil cartel has pledged to fill any supply gap caused by war, but many members have already dramatically increased supplies this year and analysts believe any prolonged outage of Iraqi supply, with some impact on Kuwait, would test the group's spare capacity to the limit.

The United States, the world's top oil consumer, has made preparations to release some oil from its strategic reserves to prevent any supply interruption. But the signal to open the taps on these emergency stocks will come only when the government decides a shortage has developed.

www.menafn.com Middle East Economic Survey - 17/03/2003

Walid Khadduri and Bill Farren-Price of MEES report on the OPEC Ministerial Conference held in Vienna on 11 March.

OPEC ministers meeting in Vienna on 11 March agreed to maintain present oil production levels and reiterated their collective commitment to supplying global markets as required in an effort to bring stability to oil prices. In a communiqué issued at the conclusion of the ordinary ministerial meeting, OPEC said its decision was motivated by the view that present oil supplies were adequate to meet current market requirements, after taking into account the supply/demand picture for the first and second quarters. The organization said it continued to watch geopolitical developments closely and underlined its readiness to supply the market as required. Ministers welcomed the return of Venezuelan production but insisted that while cold weather and low OECD stocks had contributed to high prices so far in 2003, "the current high price levels above the OPEC price band are predominantly a reflection of uncertainties resulting from prevailing geopolitical tensions." Ministers announced plans for an extraordinary meeting in Doha on 11 June and a subsequent ordinary meeting to be held in Vienna on 24 September.

While there was no mention of Iraq in the final communiqué - marking the desire of ministers to avoid signalling that policy was being formed in expectation of military conflict against a member state - the opening speech by OPEC President and Qatari Oil Minister 'Abd Allah al-'Attiyah was more specific on this count. He said that the Iraq crisis had reduced OPEC's influence on oil prices, even though the group's output decithough the group's output decisions in January had prevented oil prices from even greater rises. Mr 'Attiyah stressed that OPEC was ready to respond to any change in market conditions, whether by bringing remaining group production capacity on-stream in the event of fresh supply disruption or by cutting production should the market become oversupplied in the second quarter as a result of the seasonal drop in global demand and the continued resumption of Venezuelan production.

The ministerial meeting itself, which was not attended by either the Kuwaiti or Iraqi oil ministers, dealt with nominations for the post of OPEC Secretary General, which will become vacant at the end of the year. Ministers also discussed nominations for the post of Secretary General of the International Energy Forum, which is being established in a permanent secretariat in Riyadh. Nominations for the post have been submitted by Norway, Mexico and Italy. Delegations representing non-OPEC oil producers Angola, Egypt, Mexico, Oman and Russia also met with ministers.

OPEC Close To Full Production Capacity The subtext to OPEC's central commitment to keep global markets well supplied was that the group is already producing close to capacity, with only Saudi Arabia and to a much lesser extent several other countries able to mobilize additional production from present levels if required. This was the main reason that the issue of quotas - which are de facto in abeyance during this period - was not a subject for official discussion at the meeting, despite persistent media reports to the contrary. While MEES understands that additional Saudi capacity is being de-mothballed in preparation for use towards the end of March, OPEC's options for substantial new additions to production capacity are now limited. Ministers also now appear resigned to the fact that pure supply fundamentals are no longer sufficient to bring prices back down towards OPEC's preferred $22-28/B price band. In comments made ahead of the ministerial meeting Saudi Oil Minister Ali Naimi conceded that the only way to bring prices down was "to eliminate the drums of war". This point was also made by UAE Oil Minister Obaid al-Nasseri, who pointed to the fact that OPEC had added 3mn b/d of production in the last two months. "This will take care of the market for the time being," he said.

In recent bilateral meetings, OPEC ministers and officials appear to have extracted a commitment from the IEA and the US that the organization will be given the opportunity to address any fresh supply problems - in the event of a war with Iraq - before strategic stocks are released. However, on several recent occasions, OPEC has indicated that it has already proved its commitment to market stability, through its swift ramp-up of production in late 2002 and in January this year, and that any fresh requirement for supply will have to be met by a release of strategic reserves.

Three of the key players in this discussion - Mr Naimi, US Energy Secretary Abraham Spencer and the newly-appointed Executive Director of the IEA Claude Mandil - have all held bilateral meetings in recent days to reiterate their common understanding on this point. At their meeting in Riyadh on 5 March, Mr Naimi and Mr Mandil conveyed their agreement on the use of reserves only after producers had been given an opportunity to address a supply shortfall (MEES, 10 March). Meeting in Brussels on 7 March, Mr Mandil and Mr Abraham stressed their appreciation of producer action already taken to stabilize markets. "The US Government and IEA appreciate the actions of producer nations, which have already increased production to mitigate the effects of the Venezuelan disruption. In light of tight markets, we also appreciate producers' willingness to increase production if necessary to address any further supply disruption," they said in a joint statement, adding that they were committed to ongoing close consultations with producers and would "make additional volumes of oil available to the market to reinforce producers' efforts if needed." After a brief meeting with the Saudi delegation in Vienna, Mr Abraham reiterated US policy that its Strategic Petroleum Reserve would only be tapped if there was a serious supply disruption. He said that he viewed OPEC's commitment to supply the market as positive and added: "We view the reserves as a backstop, an emergency capability to deal with severe supply disruptions."

Supply Scenarios Present Distinct Challenges For OPEC Yet privately, OPEC officials are more concerned about the need to manage the downside pressures on oil prices as they are likely to emerge in the coming weeks and months. A number of possible scenarios each present the organization with different challenges and potential solutions. The first scenario, thought to be the least likely but most benign, would see Saddam Husain step down or be removed internally, short-circuiting US plans for military action. Under this scenario, the war premium would be expected to disappear very swiftly, requiring OPEC to reduce production immediately in order to prevent oversupply and a resulting crash in prices.

A much more likely scenario, under which military action against Iraq is delayed through into 2Q would see the war premium, estimated at $4-6/B, continue, with increased volatility as markets remain under the influence of news headlines. A third scenario sees military action closing Iraqi production for a few weeks if not months. The assumption here is that US forces would need some time to establish security in the country and subsequently mobilize the tens of thousands of Iraqi oil employees. This also assumes vessel nominations and market operations would proceed smoothly enough to provide confidence to customers of Iraqi crudes. OPEC would take up the slack as much as able and reiterate its assurances of supplying the market as needed. Under this scenario, MEES understands that ministers would be unlikely to feel the need to meet until the Doha meeting, where they would be able to take stock of the situation. Certainly, there is a desire among members to avoid politicising what is already a very sensitive situation - which would likely be the effect of an emergency meeting held while any attack on Iraq was underway. This third scenario, if coupled with a continuation of Venezuela's increase in production, would probably require some reduction in group output into 2Q in order to address the seasonal drop in demand. Clearly, further variables to all three basic scenarios - including the precarious state of the global economy - will make OPEC's task in devising appropriate policy responses all the more difficult.

Overall 1Mn B/D Implied Stockbuild In 1Q MEES understands that while the supply/demand balance in January was tight due to the Venezuelan strike, cold weather and US fuel substitution, February and March have seen the market well supplied to the extent that buyers have turned away some extra Gulf cargoes. Moreover, based on initial data for March production and demand, the balance has produced an average contra-seasonal stockbuild of some 1mn b/d in 1Q. According to MEES soundings, OPEC estimated average production of 27mn b/d in 1Q is at least 1mn b/d above the call on OPEC crude in the period, estimated at just less than 26mn b/d. This implied stockbuild has been most pronounced towards the end of the quarter as OPEC production has risen and is expected to start showing up in US stocks data over the coming two to three weeks. For 2Q, the call on OPEC crude is expected to fall to 23-24mn b/d, which on current OPEC production rates would produce an implied stock build of around 4mn b/d. This level of stockbuilding would pressure prices if there was no threat to Iraqi production, since it is well above the more normal seasonal stockbuild of 1.0-1.5mn b/d in 2Q. However, if Iraqi production of some 2.7mn b/d is taken out of the market during the second quarter, then the surplus to call is in line with the seasonal average. Obviously, if Iraqi production continues unhindered, then member states will have to alter their present flat-out production policies and OPEC will have to review its current production ceiling.

pacific.bizjournals.com March 15, 2003  Howard Dicus   Pacific Business News

Oil prices are rising because of things that might happen, not because there isn't enough oil now. The Middle East Economy Survey reported Saturday that members of the Organization of Petroleum Exporting Countries produced 27.88 million barrels of oil per day last month.

The means OPEC output ballooned 8.6 percent despite the fact that one of its major members, Venezuela, still isn't back to 100 percent of its normal production as it recovers from a general strike in December. Venezuela did recover more of its production in February, however, while Saudi Arabia and Kuwait pumped a lot more.

Gulf states as a whole, not counting Iraq, boosted production last month by 10.1 percent. Iraqi production, which has been higher than usual in recent months, fell 0.95 million barrels per day in February because of an interruption in tanker truck shipments through Turkey. Saudi Arabia alone pumped enough extra oil to make up for 90 percent of the slippage in Iraqi production.

Gasoline prices are above $2 in most locales on Hawaii's neighbor islands, though self-serve regular remains at $1.90 or slightly below at many gas stations in Honolulu, where competition is greater.

www.timesdispatch.com THE ASSOCIATED PRESS Mar 13, 2003

VIENNA, Austria - A surge in world oil output last month has left producer countries with too little spare capacity to fully offset a wartime halt in supplies from Iraq.

The International Energy Agency said yesterday that output increased 2.5 percent worldwide in February and that oil inventories tightened in major importing nations. Fears of a U.S.-led attack on Iraq propelled prices to their highest levels since the 1991 Persian Gulf War.

International oil markets are "running on empty" as war clouds gather again in the gulf, the agency said in its monthly oil market report.

"A further supply disruption would tax a system operating at close to capacity," the report said.

The only reliable cushion for consumers may be the 4 billion barrels in strategic stocks of crude that IEA members have amassed for use in an emergency, it added.

The agency issued its grim assessment a day after the Organization of Petroleum Exporting Countries decided to leave its oil production quotas unchanged at 24.5 million barrels a day. OPEC, which pumps about a third of the world's crude, made clear that it would boost its output to try to cover any shortfall arising from a war.

The IEA is the energy watchdog of the Organization for Economic Cooperation and Development, a group of the world's wealthiest oil-importing countries.

While highlighting many causes for concern in oil markets, the IEA expects that the end of winter - the peak season for heating oil sales - will reduce demand for crude by about 1.6 million barrels a day. Such a decrease would offset a loss of Iraq's exports under the U.N. oil-for-food program, the report said.

World production rose in February by 1.96 million barrels a day to 79.41 million barrels, and OPEC contributed more than three-fourths of the increase, the agency said.

OPEC claims to have 2 million to 4 million barrels in additional production capacity. The IEA argued that OPEC's "effective spare capacity" - the additional crude it could produce on short notice - was much smaller.

The agency said OPEC's effective spare capacity fell last month to 1.72 million barrels a day from 2.37 million barrels in January, as the cartel produced more oil to make up for deliveries during Venezuela's strike. With OPEC increasing production to cash in on high prices, this extra capacity has probably diminished in March to fewer than 1 million barrels a day, the report said.

Iraq produced 2.49 million barrels a day in February. If U.S.-led forces attacked Iraq during the second half of March, the IEA suggested that it would be May before OPEC could offset the shortfall.

On the New York Mercantile Exchange yesterday, April contracts of U.S. light, sweet crude rose $1.11 to $37.83 a barrel . On the International Petroleum Exchange in London, April Brent rose 62 cents to $33.91 a barrel