Vanguard By Hector Igbikiowubo with Agency report Wednesday, June 11, 2003

LAGOS—ORGANISATION of Petroleum Exporting Countries (OPEC) appears split over a potential cut in production to allow Iraq come back on stream, while non-OPEC Mexico said there was no need to tighten the tap.  Abdullah al-Attiyah, president of the organisation, said the cartel would consider a cut at its meeting tomorrow in Qatar’s capital, Doha.  “Now is the right time for OPEC to study how to accommodate Iraq, how to make room for Iraq, by, you know, cutting production from others,” Attiyah, also Qatar’s oil minister, told reporters. Attiyah, citing Iraqi authorities, said Iraq’s crude production would likely be one million barrels per day and beyond from mid-June.

"Iraq will come to the market. That’s their right. We have to help them and we also have to make room for them.”  On current price levels, Attiyah said crude was selling within OPEC’s price band mechanism of 22-28 dollars a barrel.  “It’s not a high price. It’s still in the band. We’re happy to see it in the band, we don’t want to see it over the band. We’re working very hard to keep prices within the band.”  But Kuwait called to roll over OPEC crude oil production at least until September because prices were satisfactory.

“It’s better to continue with our production because we think we are still in the average price (band),” acting oil minister, Sheikh Ahmed Fahd al-Ahmed al-Sabah said.  “The latest report was 27 dollars a barrel. Therefore we are in a good situation. We have to continue, from now to September,” Sheikh Ahmed said.  “I think we will always have to cooperate with non-OPEC,” he said, adding that the cartel needed the support of non-OPEC producers “for the future.”  But non-OPEC Mexico cast doubts on the possibility that oil exporters that are not members of the cartel would automatically join in any cut.

“From our perception the market is going well,” Juan Antonio Barges, undersecretary for hydrocarbons, pointed out. “I don’t feel a (output) cut is necessary according to the economic information that we have.”  Asked what Mexico would likely do if OPEC were to cut production, Barges said: “We’ll have to do our review. As I have said, I don’t believe there’s a need for a cut.”

 Mexico is one of five non-OPEC states to attend the extraordinary OPEC meeting here as observers. The Venezuela, UAE, Nigeria, Kuwait, Libya, Indonesia, Algeria and Qatar. The seat of Iraq, where OPEC was born 43 years go, will be vacant.  The US-British coalition ruling post-war Iraq has said it would be up to a future “representative” Iraqi government to decide whether the country remains inside the organisation.

 Algeria earlier made a detailed case of the situation in some member countries including his, pointing out that the economy is slowing down. The Algerian Energy Minister Chakib Khelil told reporters that:”You have a tremendous devaluation of the dollar in respect to the euro. You have all these concerns about SARS and its effects on tourism, on demand and also you have overproduction by non-OPEC countries,” he said.  Khelil said the greenback’s depreciation affected countries like Algeria, which imports heavily from Euquarter,” he said.   

OPEC kingpin Saudi Arabia has not taken a clear position so far, but in a joint statement with Venezuela and Mexico issued Friday in Madrid said the current oil market was balanced, “with supplies adequate to meet present and future world demand for oil.”

By James Cox, USA TODAY With oil prices near 12-week highs, OPEC ministers who were set to slash output after the war in Iraq instead left production levels unchanged at their meeting Wednesday.

OPEC President Abdullah bin Hamad al-Attiyah said the 11-nation cartel will meet July 31 to reassess the situation.

Crude prices were expected to tumble after the war on the belief that, with Iraq's oil facilities largely intact, Iraqi oil would flow quickly back to export markets. Instead, looting and sabotage have prevented Iraq from resuming exports, and global oil prices have remained stubbornly high.

In New York, the price for U.S. benchmark crude closed up 28 cents at $31.73 a barrel on Tuesday.

Economists say prices have not retreated because Iraq has been slow to revive production, and political turmoil has suppressed output in Venezuela and Nigeria.

"Two months ago, they thought, 'Oh my God, in another month we could see $15 (a barrel) oil if Iraq comes back.' It hasn't happened," says Fadel Gheit, oil analyst at Fahnestock & Co.

Monday, Iraqi oil officials appointed by the U.S. occupation authority said crude exports wouldn't resume until month's end and wouldn't reach prewar levels until the middle of 2004.

Al-Attiyah said that the July meeting would look at the impact of Iraq's return to the oil market and that OPEC would consider all options to maintain its interests.

Venezuelan oil officials insisted Tuesday that the country was pumping enough to meet its OPEC quota. But "somebody's lying," Gheit says, "because if that was the case, prices would be lower."

Prices soared near $40 to hit 12-year highs during the Iraq war. But lost supplies from Iraq, Venezuela and Nigeria have partly been offset by Saudi Arabia, Kuwait and the United Arab Emirates, which have boosted output.

Commercial stockpiles worldwide are at five-year lows. U.S. inventories are near two-decade lows.

"We haven't been able to catch up and replenish," says Tom Kloza at Oil Price Information Service. "Part of that is due to some very brisk gasoline demand, part is a hangover from a godawful winter."

Gasoline prices have come down, falling 10 out of the most recent 11 weeks, says the U.S. Energy Department. Nationally, regular unleaded is expected to average $1.46 a gallon during the summer driving season, the department predicts.

Gheit says oil prices could plunge $4 to $5 a barrel once Iraq can resume its prewar export of 2 million barrels a day. In the meantime, the Organization of Petroleum Exporting Countries is walking a fine line.

On one hand, it doesn't want to choke off a global economic recovery by keeping prices too high. On the other, it's determined to stave off a crash in prices when Iraq, Venezuela and Nigeria begin boosting their exports.

OPEC has been lobbying big non-OPEC producers Russia, Mexico and Norway to support the cartel's anticipated production cuts by holding output firm or making their own cuts.

Contributing: The Associated Press

Iraqi workers inspect equipment at the Basra oil refinery in mid-May. Almost all of the 2,600 Iraqi employees at the plant are now back at work.  

By John W. Schoen MSNBC

June 10 —  When OPEC meets Wednesday in Doha, the cartel will probably leave production quotas just where they are. With crude oil prices high, and world stockpiles at historic lows, the case for cutting output is pretty hard to make. Mostly, they’ll be trying to assess the threat of a big new supply of Iraqi oil hitting global oil markets, as U.S. forces and Iraqi workers scramble to get that country’s oil industry back on its feet.             WITH OIL PRICES hovering above $31 a barrel, comfortably above OPEC’s price target of $22-$28, even the group’s most militant members will have a hard time making the case for cutting the current quota of 25.4 million barrels a day. Still, the big worry for the Organization of Petroleum Exporting Countries is that a bigger-than-expected flow of Iraqi oil could send prices falling quickly.        Iraqi officials last week began accepting bids for about 10 million barrels of oil in storage that was produced before the U.S. led invasion in March. Iraq’s de facto oil minister Thamir Ghadhban has said exports would reach a million barrels a day by July, about half pre-war levels.        But it’s a lot less clear how soon the country’s creaking oil infrastructure can be patched together well enough to begin exporting in significant volumes. Looting and sabotage since the war have left Iraqi oil facilities badly crippled. Some oil analysts say the current timetable for bringing Iraqi production back on line are too optimistic.

       “I think the market has overestimated the ability or Iraq to start pumping oil,” said Phil Flynn at Alaron Trading.

	       Still, some OPEC ministers are concerned that they may overshoot production if they continue pumping at current levels — especially if a soft global economy continues to hold back demand. Since the cartel last set quotas, tight supplies have eased from two key members. 

       Venezuela, where a lingering strike cut earlier this year production to below 600,000 barrels per day, was producing an average of 2.1 million barrels a day in April, according to a Lehman Brothers report. And Nigeria’s output has likely risen after falling to below 2 million barrels a day in April. Those outages helped drain reserves to about 100 million barrels below the historical range for this time of year, the report said.        All this means that OPEC wants to hedge its bets — even if it leaves production at current levels. One sign is that the group has invited seven non-OPEC members, including major producers Russia, Mexico and Norway, to coordinate another production cut if prices fall. OPEC is trying to head off another battle for market share between the two groups that sent prices sliding in late 2001.        Even if Iraqi production rises to pre-war levels quickly, oil prices may continue to draw support from extremely tight supplies.

       Meanwhile, shortages of natural gas have sent the price of that fuel soaring. Federal Reserve Chairman Alan Greenspan in Congressional testimony Tuesday said it’s not likely that natural gas prices will fall soon. That helps support oil prices because it eliminates a cheaper alternative to crude for businesses, like power companies, that can switch fuels.   High nat-gas prices seen into 2004        And, if oil prices do start falling again, there nothing to prevent OPEC from calling for a quick production cut.        “We are concerned because prices are high not because of a lack of oil, they are high because of uncertainty,” said Algerian Oil Minister Chakib Khelil on Tuesday. “If the conference comes out with no change it might be necessary to meet again before September.” OPEC’s next meeting is scheduled for September 24.

Playing now: • Dow down 29 points; Nasdaq adds 9 • Oracle raises bid for PeopleSoft • Kodak blames SARS for weak sales       The real worry is that, with U.S. forces in charge of Iraq’s oil production, OPEC now confronts a major new supplier under U.S. control. If Iraqi production rises quickly above pre-war levels, OPEC and other major oil producers will have to make a painful choice — either sharply cut production to maintain prices, or let prices fall and produce more oil to make up for lost revenues.        “They really don’t want to lose that market share,” said Robert Baer, a CIA veteran who now writes about the Middle East.        Reuters contributed to this story.

Tue June 10, 2003 01:16 PM ET NEW YORK (<a href=reuters.com>Reuters) - Oil prices held firm near 12-week highs on Tuesday, a day ahead of an OPEC producer cartel meeting that is expected to postpone fresh supply cuts.

In New York, U.S. light crude was unchanged at $31.45, after hitting $31.85 on Monday, the highest price since March and up nearly 30 percent from a year ago. In London, benchmark Brent crude oil was steady at $27.85.

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 Sheik Ahmad al-Fahd al-Sabah said on Tuesday he wanted OPEC to keep its current 25.4 million barrels 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 steadily 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 over $30 per barrel, which can further undermine already weak economic growth.

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 their 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, allowing 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 one 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.

More indications on global oil supply and demand will be released on Wednesday when the U.S. government publishes its weekly petroleum inventory data, a key indicator in oil markets.

The figures are expected to show a small crude stock increase in the week ending last Friday, a Reuters poll of oil market analysts showed.

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 is down 5 percent.

Reuters, 06.10.03, 12:33 PM ET NEW YORK, June 10 (Reuters) - NYMEX crude futures trimmed their losses midday Tuesday while prompt gasoline futures surged on cash market strength after two overnight refinery fires in Louisiana, traders said. But sentiment remained bearish amid talk within OPEC that the cartel would keep current output quotas unchanged through September, ahead of the group's meeting on Wednesday in Qatar. At 12:33 EST, NYMEX July crude was 3 cents weaker at $31.42 a barrel, after extending session highs to $31.40. It earlier dipped to a session low of $30.90. "There's a bit of short-covering going on after prompt crude extended the session highs," said a NYMEX floor trader. In London, IPE July crude contract was up 2 cents at $27.87 a barrel, also recouping earlier losses. Prompt gasoline futures regained their footing after giving up overnight gains, lifted by higher Gulf Coast cash gasoline market prices. NYMEX July gasoline was up 1.15 cents at 90.80 cents a gallon, just below its session peak of 91.00 cents. Arriving in Doha, Qatar, on Tuesday to attend OPEC's meeting on Wednesday, Venezuelan Energy and Mines Minister Rafael Ramirez said saw the oil market as balanced with supply good. [nDBT000659] A similar comment earlier came from Ali Rodriguez, head of Venezuela's state oil company PDVSA. "Right now the market is balanced, stocks are low especially in the U.S., and demand will rise in the next quarter so I'm not expecting any dramatic decisions," said Rodriguez. A proposal from Kuwait that OPEC should hold its output steady to September was "not a bad idea," said Nigeria's Presidential Advisor on Petroleum and Energy Rilwanu Lukman, a former OPEC president [nDBT000656]. Earlier, Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah said OPEC should hold output unchanged until its next scheduled meeting in late September [nL10504694]. UAE Petroleum and Mineral Resources Minister Obaid bin Saif al-Nasseri, meanwhile, said that OPEC needed to make sure it complied with production limits introduced at the beginning of this month [nL10644174]. In the U.S., Exxon Mobil Corp.'s (nyse: XOM - news - people) Chalmette, Louisiana, oil refinery had a fire very early Tuesday, but the company said that operations at the plant had returned to "normal" by Tuesday morning [nN10205313]. That was one of two fires within two miles and one hour in St. Bernard Parish, southeast of New Orleans. The other fire was at the Murphy Oil Corp. (nyse: MUR - news - people). plant in Meraux, which a spokesman said was extinguished by 5:15 a.m. EST [nN10256805]. Analysts views were mixed on U.S. government oil inventory data due out Wednesday morning, but the average of a Reuters poll of oil market analysts was for a 500,000 barrel stock increase as imports were expected to have dipped while refinery runs slowed a bit [nN09153458]. Gasoline supplies were expected to have risen by 1.4 million barrels and distillate were expected to have been boosted by 1.6 million barrels. NYMEX July heating oil futures were off 0.20 cent at 77.70 cents a gallon, paring earlier losses. It traded between 76.80 and 77.90 cents.