By Myra P. Saefong, <a href=cbs.marketwatch.com>CBS.MarketWatch.com Last Update: 3:42 PM ET June 10, 2003

SAN FRANCISCO (CBS.MW) -- Crude futures closed higher Tuesday, with traders unwilling to sell ahead of an expected decision on production levels from OPEC members gathering in Qatar.

The cartel's summit in Doha, Qatar, is expected to announce a decision on Wednesday. The current quota stands at 25.4 million barrels per day, excluding Iraq.

"There still seems to be some genuine suspense over what OPEC might do at tomorrow's summit meeting and prices are fluctuating accordingly," Tim Evans, a senior analyst at IFR Pegasus in New York, said in an afternoon update.

But Evans said he remains confident that with prices at current levels, "OPEC is not just unlikely to cut output, but is also unlikely to schedule a meeting before the next summit on Sept. 24."

With uncertainty weighing heavily on the oil market, crude for July delivery closed at $31.73 a barrel, up 28 cents on the New York Mercantile Exchange. It traded as low as $30.90 earlier in the session and rose to a high at $31.85 on Monday -- a level not seen since before the U.S.-led war in Iraq.

Belief that OPEC won't cut quotas Wednesday is growing, Joshua Sadler, vice president at the energy-trading desk of Societe Generale told clients in a note Tuesday.

"The current prices, which are at the top of OPEC's desired price range, low stocks and continued uncertainty as to the exact date and volumes of Iraqi [oil] all point to OPEC taking a pass," he said.

Indonesia, Venezuela and the United Arab Emirates are reportedly among the OPEC countries that don't expect a quota cut. OPEC President Abdullah al-Attiyah has said that while members will have to watch the return of Iraqi exports, they won't necessarily need to cut production.

Kuwait said it'll push for a cut, and Algeria has said current supplies are exceeding demand.

Even with these conflicting comments from OPEC members, most analysts predict that the cartel will leave its production quota unchanged and continue to monitor Iraq's exports. Read the OPEC preview story.

Dow Jones reported that an oil minister from the United Arab Emirates said Monday that while OPEC will likely decide to keep its output ceiling steady, it needs to cut back on quota cheating.

Supply data due

A distant second on traders' list of concerns is Wednesday's weekly updates on U.S. petroleum inventories from the Energy Department and American Petroleum Institute.

Tim Evans, a senior analyst at IFR Pegasus, is looking for a 1 million to 3 million barrel rise in crude inventories for the week ended June 6. Societe Generale's Sadler expects a 500,000-barrel climb.

Gasoline and distillate inventories likely climbed between 2 million and 3 million barrels, Evans said. But Sadler's looking for a rise of 1.4 million barrels for gasoline stockpiles and a climb of 1.6 million for distillate inventories.

In the most recent report, the Energy Department said motor gasoline inventories rose 2.3 million barrels for the week ended May 30. Crude and distillate inventories also climbed that week. See full story.

Gasoline prices climb

In other Nymex trading, gasoline futures closed with a more than 2 percent gain as news of refinery problems sparked supply concerns.

July unleaded gasoline rose by 2.06 cents to close at 91.7 cents a gallon. July heating oil closed up by 0.84 cent at 78.74 cents a gallon.

Thorsten Fischer, an energy economist at Economy.com said gasoline found support from news of problems at a Tesoro (TSO: news, chart, profile) refinery in California and two fires in Louisiana, one in Chalmette at the Exxon Mobil (XOM: news, chart, profile) refinery and one at the Murphy Oil (MUR: news, chart, profile) refinery in Meraux.

Natural gas gets noticed

Elsewhere on the energy front, representatives from the natural gas industry as well as consumer groups and analysts addressed the natural-gas supply situation at a hearing before the House Committee for Energy and Commerce on Tuesday.

Federal Reserve Chairman Alan Greenspan told Congress that industrial users of natural gas are feeling the pinch of the structural natural gas shortage in North America. See full story.

Richard Sharples, a senior vice president at Anadarko Petroleum (APC: news, chart, profile), also warned that the U.S. faces a "serious challenge with the growing gap between natural-gas supply and demand." Read a related archived story.

With supply concerns in the backdrop, natural gas for July delivery rose by 1.6 cents to close at $6.33 per million British thermal units -- well off the session's low of $6.23.

An update on U.S. natural-gas supplies in storage is due Thursday morning. Early estimates call for a rise of 110 billion cubic feet, but analysts at Fimat USA expect a 98 billion cubic foot climb. A year ago supplies rose 88 billion cubic feet.

Last week, the Energy Department said gas supplies rose by 114 billion cubic feet for the week ended May 30. But total supplies of 1.199 trillion cubic feet in storage are still 755 billion cubic feet less than they were a year ago.

In the equity arena, oil-service shares traded narrowly higher, as reflected by activity in the Philadelphia Oil Service Index ($OSX: news, chart, profile). See Energy Stocks.

Elsewhere, Nymex gold futures closed at their lowest level in a month. See Metals Stocks.

The Reuters/CRB Index, a broad-based measure tracking commodity futures prices, rose by 0.4 percent to 237.7. Myra P. Saefong is a reporter for CBS.MarketWatch.com in San Francisco.

News24.com 10/06/2003 12:32  - (SA)  

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Doha - Opec nations have injected a fresh dose of suspense to a tense oil market ahead of meeting on Wednesday, hinting that an output cut to accommodate Iraq's upcoming production was on the cards.

"We will discuss all the options," said Opec president Abdullah al-Attiyah, whose country, Qatar, is due to host the extraordinary meeting of the Organisation of Petroleum Exporting Countries.

Attiyah, who is also Qatar's energy minister, said the market could face a production surplus of about 1.4 million barrels per day (bpd) if the same level of production is kept for the third quarter.

But he added that "this does not mean" that the organisation will lower its current official output ceiling of 25.4 million bpd.

His statement nevertheless cast doubts on earlier ones from Opec officials that the cartel was to roll over the ceiling because prices were close to the upper limit of the US$22-$28 band sought by the cartel.

Venezuela's Energy Minister Rafael Ramirez seemed on Monday to advocate a rollover, telling a press conference in Madrid that the market was "sufficiently supplied".

Ramirez added that another Opec meeting would "probably" take place over the summer, after Iraq's exports resume, ahead of the next regularly scheduled session of the cartel in September.

The Venezuelan minister had conferred on Friday in Madrid with counterparts from Opec kingpin Saudi Arabia and non-Opec Mexico, which produced a statement that the current oil market was balanced, "with supplies adequate to meet present and future world demand for oil".

United Arab Emirates (UAE) Oil Minister Obeid bin Saif al-Nasseri pointed out on Monday that the removal of the surplus could be achieved by tightening the discipline of the cartel's members in respecting their production quotas, rather than lowering the quotas.

"It would be more useful to remedy the current (surplus in) production before deciding to lower the official ceiling" he told the official WAM news agency in the UAE capital Abu Dhabi.

"It would be difficult to give a precise figure of the surplus, but output exceeds the Opec ceiling by some 1.5 million bpd," Nasseri said.

Algeria's energy minister Chakib Khelil also hinted that a cut could be needed despite the current strong prices.

"I see the inventories are already high, there is a surplus of production, and we don't know what Iraq is going to do - when it is going to come in" to production, he told reporters.

"There is a big uncertainty and that is why the prices are high. They are not high because of the fundamentals of the market."

Iraq's exports to resume

In Baghdad, the US-appointed acting oil ministry chief Thamir Ghadhban said on Monday oil exports will resume in the third week of June, but he did not expect production to return to pre-war levels for at least a year.

He has previously put pre-war production at three million bpd, although most Western analysts estimate it at closer to 2.5 million.

Khelil said non-Opec oil exporting nations should also tighten their taps should the cartel decide to do so.

"They (non-Opec) are going to be present" at the meeting "and they are going to have to decide whether to join to stabilise the prices", he said.

Venezuelan vice-minister for oil Luis Vierma said in Madrid that non-Opec Norway and Russia had expressed "in off-the-record conversations their solidarity" with whatever is decided by Opec.

According to officials from the Opec secretariat, five non-Opec exporters will attend the meeting as observers: Russia, Mexico, Angola, Oman and Syria.

Ten of the 11-strong cartel will attend the meeting - Saudi Arabia, Iran, 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.

"We will have to work hard to keep Iraq with us," said Attiyah, pointing out that the withdrawal of this nation would deprive Opec of control over 112 billion barrels of proven reserves, the second largest in the world after Saudi Arabia.

International herald Tribune Neela Banerjee NYT Tuesday, June 10, 2003   KUWAIT CITY This was supposed to be a tough season for the world's largest exporters of crude oil: They expected demand for petroleum to look weak, Iraq's postwar return to the oil market to be strong - and prices, as a consequence, to fall. But none of that has come to pass. So when the Organization of the Petroleum Exporting Countries meets Wednesday in Doha, Qatar, oil industry analysts said, it is expected to do nothing about production levels. "OPEC gets a free pass at this meeting" from making a decision, said Lawrence Goldstein, president of the Petroleum Industry Research Foundation in New York. During the war, oil traders said that Iraqi exports would resume by late May or early June. Now, those exports are very likely to be delayed at least a month. "Iraq is coming back slower and weaker than originally thought," Goldstein said. "Prices are hovering around $30 a barrel, and we're going into seasons of stronger demand in the third and fourth quarters." As far back as early March, OPEC members were concerned about how an Iraq free of Saddam Hussein and United Nations sanctions would affect the strategy the cartel has used successfully for almost four years to keep prices fairly high, despite global economic cycles. Iraq was a founder and an active member of OPEC, but since the Gulf War of 1991, its exports have been regulated by the UN oil-for-food program, not OPEC's quota system. OPEC understood that a U.S. victory in a war with Iraq, which seemed assured, would prompt a repeal of the UN program. After the war, the U.S.-appointed civil administration in Baghdad and the Iraqi Oil Ministry set an aggressive schedule for resuming exports. Two weeks ago, after sanctions were lifted, Thamir Ghadhban, interim chief executive of the Oil Ministry, said that Iraq would be exporting a million barrels a day by mid-June. Iraq was exporting nothing then and was not even producing a million barrels a day. Iraq is selling 10 million barrels of oil in storage in Turkey and Gulf countries. But starting a regular flow for export has been hampered by security problems in its southern oil region, particularly the vast Rumaila fields. Jabbar Ali Leaby, director of South Oil Co. of Iraq, which is responsible for production at Rumaila and other areas near Basra, has complained long and bitterly that security problems and continued looting have made increasing production difficult. Looting has destroyed the Garmat Ali water-treatment installation, which supplied water to Rumaila for injection into wells to aid in oil extraction. The U.S. Army Corps of Engineers, which has been coordinating the reconstruction of Iraqi oil facilities, insists that production at Rumaila can increase without the water injection. But independent oil experts disagree. Raad Alkadiri, director of the Market Intelligence Service for the consulting group PFC Energy, a Washington consulting group, wrote after a recent trip to Baghdad, "Ongoing looting, and the inability of Southern Oil Co. personnel to carry out appraisals of the local fields because of a lack of security, has severely hampered the process of bringing production back online at the country's workhorse southern fields." Commercial supplies of gasoline and diesel oil in the United States and other major oil-consuming countries have remained low, though OPEC produced far above quota levels early this year. Industry analysts said that one reason supplies have been persistently low may be that demand was greater than thought, despite the sluggish economy and, in some places, the outbreak of SARS, severe acute respiratory syndrome. Another reason, analysts said, may be that some OPEC members exaggerated output. Goldstein said his company estimated that Venezuela produces 500,000 fewer barrels a day than the 3 million barrels the government has reported. Vera de Ladoucette, senior director for Middle East research at Cambridge Energy Research Associates, said Indonesia and Iran had fallen short of their OPEC quotas. Cambridge Energy estimated that OPEC exported 26.1 million barrels a day in April, compared with its official tally of 27.4 million barrels a day.

By Hil Anderson UPI Chief Energy Correspondent Published 6/9/2003 6:23 PM

LOS ANGELES, June 9 (<a href=www.upi.com>UPI) -- Crude futures reached a 12-week high Monday as traders dug in ahead of anticipated production cuts by OPEC that are aimed at offsetting Iraq's return to the oil market, but that could take effect even before Iraqi exports resume.

July crude settled 17 cents higher at $31.45 per barrel on the New York Mercantile Exchange Monday, while OPEC officials continued dropping hints the cartel could decide this week to reduce output to prevent a price collapse when Iraqi exports hit the market later this summer.

The timing of Iraq's return to the export market is not clear, which apparently had refiners and speculators preferring to stock up as a precaution against being caught short during the peak demand of the summer driving season in the United States.

"The war in Iraq has been over for over a month, and the OPEC basket price has risen to the upper part of its target range," the U.S. Energy Information Administration noted in its latest assessment of OPEC's intentions. "Part of this may be attributable to the replacement of the 'war premium' by an 'uncertainty premium' over the anticipated time period when Iraqi oil exports will resume and reach pre-war levels."

Iraq has already announced it would accept bids for some 8 million barrels of crude stored in Ceyhan, Turkey, since before the war; however, Iraq's capability for sustained production and exports from its oilfields are a far larger factor in how world crude prices will shape up for the remainder of the year.

A sizable delay between the sale of the Ceyhan oil and the resumption of regular exports could leave the world's consuming nations in a lurch during July and August when demand for gasoline in the United States is at its highest.

"We've seen nearly three months of slowly falling prices and that trend should continue for the short term," Carol Thorp, a spokeswoman for the Automobile Club of Southern California, said as AAA's nationwide average retail gasoline price held at $1.49 per gallon. "Crude oil and gasoline inventories have increased significantly in recent days, which relieves some analyst concerns over potential supply problems. However, crude oil prices have climbed back to $30 per barrel range and this could affect retail prices later in the summer."

Meanwhile, OPEC is looking past the summer to the time when the shoe will be on the other foot. Autumn tends to see gasoline demand drop as summer vacations come to an end, which could leave OPEC in a buyers market at the same time Iraq is trying to regain its share of the world market.

OPEC may also be contributing to the perceived oil glut by its own capitalistic instincts to cash in on the current bull market for crude. With NYMEX well over $30 per barrel, the OPEC nations have been increasing their output over and above their official quotas.

The authoritative oil publication Platts Oilgram reported Monday that the 10 OPEC members -- excluding Iraq -- produced 26.35 million barrels per day last month, up 250,000 bpd from April and a combined 1.85 million bpd above the official quota. Only Nigeria, Indonesia and Venezuela were within their quotas, suggesting that OPEC's Middle East members were not prepared to surrender their market share to Iraq.

As happened at its last meeting, OPEC may announce it will reduce production by amounts that in reality only bring output in line with the current quota.

"Instead of reining in overproduction towards their new quotas, most OPEC countries have actually increased production. With (NYMEX) WTI (West Texas Intermediate crude oil) around $30/bbl and (International Petroleum Exchange) Brent around $27/bbl, there has been little incentive for them to cut back," said John Kingston, global director of oil at Platts. "Some OPEC officials have talked about cutting official quota levels at the June 11 meeting in Doha, Qatar, but that looks unlikely now."

June 9, 2003, 2:14PM Reuters News Service

DOHA, Qatar - OPEC gathered in Qatar today amid signs high oil prices and low stock levels in the West will stay the cartel's hand on cutting output.

Global markets have been starved of two months of supply from Iraq, the world's seventh largest exporter before the war, despite extra volumes from Saudi Arabia and other cartel members.

With U.S. crude at nearly $32 a barrel, Indonesia and Venezuela have said there is no need for any cut at Wednesday's meeting from OPEC's 25.4 million barrel a day ceiling, in effect since the start of June.

However, the market outlook is far from clear and OPEC President Abdullah al-Attiyah said he was concerned by a possible surplus of oil in the next three months.

"All the analysts are talking about facing a 1.4 million bpd glut by the third quarter," Attiyah said. "So far I have to share that opinion."

Officials, for now, are not completely ruling out a cut to keep the heat under a market that is pricing OPEC's index of crudes near the top end of the group's $22-$28 target.

"We are going to see what measures should be taken: if we should keep things as they are, if we should make an adjustment, a cut. I can't yet say which," OPEC Secretary-General Alvaro Silva told Reuters.

UAE Oil Minister Obaid bin Saif al-Nasseri said he did not rule out a cut, but he thought the cartel should address a mismatch between quotas and real output levels first.

OPEC output, excluding Iraq, totalled 26.6 million bpd in May, 1.2 million more than limits set for June, according to a Reuters survey. But it is expected to fall this month as Saudi Arabia cuts back on loadings.

RIVAL EXPORTERS

The Middle East-dominated cartel, which controls half of world exports, will most likely use the Doha meeting to prepare the ground for a possible cut later this year when Iraqi output is expected to rise.

"With prices where they are I don't think OPEC will do anything," said Nauman Barakat, a broker at Fimat International Banque. "They will probably call another meeting once Iraq comes back and rope in non-OPEC to do its bit."

OPEC has invited rival exporters including Mexico and Russia to Qatar, hoping to maintain a fragile partnership that has kept OPEC's basket near $25 per barrel on average for four years -- a boom price compared to the previous decade.

Consuming countries have urged the cartel to keep supplies up, fearing a damaging spike in gasoline prices this summer when demand from motorists peaks.

Recovering from the war, Baghdad is preparing to resume international sales in about a week. Exports are expected to hit a million barrels per day next month, about half pre-war levels.

In April, OPEC ministers said they were ready to cut sharply to make room for Baghdad, possibly as soon as the Doha meeting.

Now data from the OPEC secretariat shows that the world market can absorb some 1.3 million bpd above forecast demand during the third quarter to replenish stocks, an OPEC source said, asking not to be named.

"That means there is more than enough room for Iraq at current quota levels," he told Reuters, based on an assumption that Iraq will supply at 1.5 million bpd in the third quarter.