<a href=www.troyrecord.com>AFX News Ltd. April 10, 2003

PARIS, Apr 10, 2003 (AFX-Asia via COMTEX) -- The International Energy Agency said global oil production rose by a further 740,000 barrels per day in March, after February's 2.25 mln bpd increase.

OPEC crude supply gained 95,000 bpd with higher output from Venezuela, Saudi Arabia and Kuwait helping offset losses from Iraq and Nigeria.

Non-OPEC supply increased by 240,000 bpd, the agency said.

The Paris-based agency left its 2003 global oil demand forecast virtually unchanged at 78 mln bpd, compared to 78.01 mln bpd in February.

Though damage to oil infrastructure in Iraq appears limited so far, the timing and extent of supply recovery both from Iraq and Nigeria is uncertain, it warned.

OPEC spare capacity is low, but that is partly offset by significant volumes of oil on the water plus seasonal demand decline, it added.

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<a href=news.ft.com>Financial times By Toby Shelley

Published: April 10 2003 8:53 | Last Updated: April 10 2003 8:53 The oil market has weathered the storms of conflict in Iraq, communal violence in Nigeria, and the winter strikes against the government in Venezuela, according to the International Energy Agency.

Reinforcing a tone of cautious confidence first expressed by the OECD's energy watchdog as fighting commenced in Iraq, the IEA's widely-watched monthly market report said, "the system is working - producers are increasing production, oil is arriving in consuming regions and prices are easing".

After speaking with Ali Naimi, the Saudi oil minister, and Abdullah al-Attiyah, president of the Organisation of Petroleum Exporting Countries, at the start of the war in Iraq, Claude Mandel, executive director of the IEA, said he had been given assurances that large volumes of crude were "on the water". This, combined with the faster than expected recovery of Venezuelan output and imminent seasonal demand falls, led the IEA away from earlier dire warnings.

Indeed, the IEA pays its respects to its sparring partner, saying, "There is little doubt that Opec has done much to calm an otherwise jittery market".

The April market report confirms that Opec producers have been as good as their word in making up for shortfalls. "Clearly, producers have been pre-positioning crude in key consuming regions to mitigate the potential impact of a prolonged supply disruption, thereby assuming the financial risk and burden of transforming long haul into short haul supply", it says.

Of the additional world oil production in March of 740,000 barrels a day, 500,000 came from Opec members despite the war in Iraq and despite almost 40 per cent of Nigerian production being lost at times. The so-called Opec-10 - that is, excluding Iraq - produced 25.86m b/d in March, 1.4m above their target as circumstances made quotas notional. Opec is to meet later this month to decide whether to try to cut production to prevent a feared further collapse in prices. The IEA acknowledges the force of the argument for cuts - its own estimate for 2003 call on Opec crude is only 24.8m b/d. Nonetheless, it says the "real question mark remains over the timing, extent, distribution and duration of any cut".

The IEA's forecast for world oil demand remains roughly unchanged at 78m b/d for 2003.

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Group says glut of oil shipments is in transit, but exporters should not cut production too quickly.

LONDON (Reuters) - A "wall of oil" is poised to reach importing countries in the second quarter, traditionally the weakest for demand, but producers would be imprudent to cut output too quickly, an industry group said Thursday.

While leading OPEC members more than compensated for disruptions to Iraqi and Nigerian oil supply last month, talk of a cut in output later this month is "premature," the International Energy Agency said in a monthly report.

"I'm not sure that we have to fear an oversupply," the agency's Executive Director Claude Mandil Mandil told an energy conference in Paris.

"Stocks are very low and have to be rebuilt, and to rebuild the market needs extra supply, and all the more because in less than two months the driving season will start and demand will be high," he said.

The Organization of the Petroleum Exporting Countries is planning an emergency meeting, with many members calling for a reduction in output after a drop in prices to near the group's $25 a barrel target.

The IEA indicated fundamental factors pointed to a comfortable stock build for the second quarter, ahead of the summer demand.

Assuming steady production of nearly 26 million bpd from the cartel, without anything from Iraq, stocks would build at about 2.4 million bpd during the slow demand second quarter, IEA figures show.

Recent OPEC production increases have yet to show up in consumer country inventories because refiners have limited purchases in the hope of lower prices after the war on Iraq, the IEA said.

"The net result is a temporary backlog of crude on the water," the agency said. "There has been talk of a 'wall of crude' on the water that is waiting to arrive in key consuming regions," it added.

But for the IEA, adviser on energy to 26 industrialized nations, supply dangers still loom.

Iraq's continued outage, Nigerian disruptions ahead of presidential elections and Venezuela's underperforming output after an opposition strike make for uncertainties, it said.

Market attention has shifted from fears of a shortage to fears of a glut after OPEC members led by Venezuela, Saudi Arabia and Kuwait were able to compensate for lost output in March due to the attack on Iraq and violence in Nigeria.

The 11-member group boosted production by 95,000 bpd to a total 27.31 million bpd last month, the IEA said.

"Consumers are growing increasingly confident that the market can weather the storm caused by concurrent supply disruptions in Iraq, Venezuela and Nigeria," it said.

Excluding Iraq, the members governed by output limits lifted production by 1.13 million bpd to 25.86 million bpd.

This is 1.4 million bpd over the group's production target, the bulk of that from Saudi Arabia, which boosted production to an estimated 9.32 million bpd in March, the report said. In the second half of March, Saudi output was over 9.5 million bpd.

The IEA said Venezuelan production had recovered from a crippling opposition strike more quickly than expected, averaging 2.1 million bpd by the end of the month. But it said output may rise only another 300,000 bpd because some 400,000 bpd of capacity had been lost during the strike.

But now the nine members of OPEC -- excluding Iraq, and Venezuela -- have only 1.23 million barrels per day bpd of spare capacity, down from 1.67 million bpd in February, it said.

Global oil production in March jumped 740,000 bpd to 80.27 million bpd, up 4.44 million bpd from a year ago, but more than half of that was non-conventional OPEC natural gas liquids and oils, including the restart of very heavy oil production in Venezuela.

World oil demand is expected to grow by 1.1 million barrels a day this year to 78 million bpd, a forecast steady from its previous report, the IEA said.  

The Street.com By Rebecca Byrne Staff Reporter 04/10/2003 11:28 AM EDT

What a difference two months make. Back in February, economists were fretting about a jump in oil prices, saying it could spark another recession. But today, with the end of Saddam Hussein's regime in sight, analysts are wondering whether oil prices could be in for a prolonged slump.

A couple months ago, oil prices shot up to $40 a barrel as tensions with Iraq began to intensify and a strike in Venezuela reduced supplies amid strong seasonal demand. The spike up severely weakened the U.S. economy, leading it to contract in February and March, according to some economists. But now, the Venezuelan strike is over, demand is set to fall off and an end to the Iraq war seems imminent.

While crude oil already has fallen to under $29 a barrel, analysts say prices could continue to drop, possibly to as low as $22 a barrel over the long term, particularly if there is an influx of Iraqi oil into the world markets.

A decline in oil prices is certainly good news for the economy, as higher energy prices often act as a tax on the consumer. Still, economists warn that higher fuel prices haven't been the only factor hampering the economy in recent months, and a big decline in oil prices won't necessarily cure all of the market's ills.

"The mini-inventory cycle that has recently gripped the automotive industry ... is currently depressing factory activity," said ABN Amro chief economist Steven Ricchiuto. "The tightening of lending standards being applied to the consumer sector by domestic financial institutions is also a significant growth concern, [and] the seemingly endless corporate cost-cutting initiatives are clearly sapping the vitality from the recovery."

Still, a fall in oil prices wouldn't hurt. Iraq holds the world's second-largest oil reserve after Saudi Arabia, with more than 112 billion barrels of oil. Because about 90% of the land is unexplored, some experts believe that the reserves could be even larger. And because Iraq will need billions of dollars to repair its infrastructure after years of sanctions and economic weakness, some analysts think Iraq will be given a free pass to export as much oil as possible once the war is over.

"It's obviously going to have a long-term dampening effect [on oil prices] because it's going to increase supply, or replace supply that hasn't been in the market for 12 years," said Paul Larson, an energy analyst at Morningstar. "Iraq has the second-largest reserves, and it's not even in the top five in terms of production."

Before the war began, Iraq was exporting roughly 2 million barrels of oil per day, down sharply from around 3.5 million barrels before the first gulf war, according to the Energy Information Administration. The EIA, a statistical agency of the Department of Energy, said that the country's production capacity is no higher than 2.9 million barrels per day, with export potential of 2.5 million barrels per day.

One major impediment to producing more oil -- besides U.N. sanctions -- has been that the country lacks the necessary tools and systems. But analysts say new state-of-the-art American technology could help to increase production capacity sharply over the next few years.

"The industry has been in a chronic state of underinvestment for roughly 10 years, so you have immediate rehabilitation needs that are very pressing," said Tyler Dann, an analyst at Banc of America. "The rehabilitation phase and the care of existing assets will take place over the next 12 to 15 months, and then I expect Iraq will come back toward sustainable production of 3 million to 3.2 million barrels per day."

Although it will take some time to negotiate contracts -- some foreign contracts to expand production in Iraq already exist -- and to repair oil facilities, analysts said prices could fall in anticipation of an increase in production.

Iraq has stopped exporting oil since the war began, partly because the buyers of oil weren't sure who they should pay. Saudi Arabia has made up the shortfall, and was recently producing more than 9 million barrels of oil per day, according to industry sources. Once the war is over, however, analysts expect Iraqi production to ramp up again.

Vice President Dick Cheney said Wednesday that he expects Iraq to produce between 2.5 million and 3 million barrels of oil per day by the end of the year -- a number that Fahnestock analyst Fadel Gheit called "conservative."

"Once we get this mess cleaned up, Iraq will open up its oil sector to investment, we're going to lift the sanctions and sponsor all sorts of programs for economic development," Gheit said. "If we apply our technology and expertise, Iraq will have incredible upside potential."

After the steep climb earlier this year, Nymex crude oil is now back down to $28.80 a barrel, and Gheit and Larson said they expect prices to fall to between $22 and $24 going forward. Of course, it's not just Iraq that is prompting talk of lower oil prices. Production in Venezuela is getting back to normal, Nigeria has started pumping oil again and seasonal demand is due to fall in the coming months.

Still, analysts believe Iraq is likely to pressure oil costs over the long term, although prices will ultimately be supported by production cuts from the Organization of Petroleum Exporting Countries. Typically, OPEC considers intervening when the price of oil moves outside a band of $22 to $28 a barrel.

OPEC "tried before to pump as much oil as it could into the market and at the end of the day they got less money for it," Gheit said. "They would rather see a modest cut in production and a modest decline in prices."

On Tuesday, OPEC president Abdullah Hamad bin Al-Attiyah said he is worried about a glut of oil and requested an emergency meeting April 24 to reconsider how much the cartel is producing. OPEC often produces more than its stated goals.

Meanwhile, amid the speculation that oil prices could sag, shares of energy companies have moved lower, with the AMEX Oil Index down 3% for the year. Exxon Mobil (XOM:NYSE - news - commentary) is down 1% year to date, while ChevronTexaco (CVX:NYSE - news - commentary) is off 3%. Oil-service firm Schlumberger (SLB:NYSE - news - commentary) is down more than 10%, although Halliburton (HAL:NYSE - news - commentary) is up 11%. A Halliburton unit won a U.S. government contract to assess and extinguish oil-well fires in Iraq, but missed out on a larger contract for reconstruction in the country.

Posted on Tue, Apr. 08, 2003 By Alex Lawler Star Telegram-The Associated Press

PARIS - The Organization of Petroleum Exporting Countries will consider a production cut after a 28 percent drop in oil prices in the past month caused by allied progress in Iraq.

"The market is facing a glut, not a shortage," said OPEC President Abdullah bin Hamad al-Attiyah, who is also Qatar's oil minister, speaking to reporters in Paris after meeting with French Industry Minister Nicole Fontaine. "The market is full of oil," he said in announcing an April 24 meeting.

The Brent crude-oil futures contract on the International Petroleum Exchange fell 10 cents to close at $24.58 a barrel. Prices are down from $34.10 on March 7 and are down 9 percent from this time last year as U.S. forces have closed in on Baghdad in the war to oust Saddam Hussein.

OPEC oil output rose in March to the highest level in 18 months, as increases in Venezuela and Saudi Arabia made up for a drop in Iraqi output, a Bloomberg News survey showed. Reflecting the increase, U.S. inventories rose by almost 7 million barrels, or 2.5 percent, in the latest week.

Most members are ignoring their output quotas, designed to keep the group's benchmark price between $22 and $28 a barrel. OPEC exceeded its target by 1.57 million barrels a day, or 6.4 percent, in March. The OPEC president said members are seeking prices at $25 a barrel.

Saudi Arabia, OPEC's biggest producer and the world's top oil exporter, pumped 9.2 million barrels a day in March, the highest in at least 13 years, according to the Bloomberg News survey.

An end to the Iraqi conflict may cause prices to fall below $22 a barrel, the lower end of OPEC's target range, as world output climbs, said the head of Venezuela's state oil company, Ali Rodriguez.

"Iraq could be tempted to boost its production quickly," he told reporters in Caracas, Venezuela. "Prices could fall very abruptly, but I don't see a permanent price collapse."

After raising quotas twice this year, OPEC is considering a meeting at its Vienna, Austria, headquarters. The group, which pumps a third of the world's oil, had been planning its next gathering for June 11 in Doha, Qatar.

Although the attack by coalition forces in Iraq has stopped the nation's oil exports since March 20, world demand in the second quarter normally drops as the Northern Hemisphere spring reduces consumption of heating fuel, offsetting the loss.

Iraq exported 1.4 million barrels of oil a day in the week ended March 7, according to the United Nations, which oversaw the shipments. The International Energy Agency, an adviser to 26 oil-consuming nations, expects demand to slow this quarter by 1.6 million barrels, from the first three months of the year.