Oil shipments from Gulf unaffected

Khaleej Times - 23/03/2003

CAIRO Petroleum shipments from the Gulf were unaffected yesterday despite reports of blazing wells in Iraq's southern oil fields, shipping sources said.

"From Kuwait to Suez, it's smooth and steady," said a London-based shipping executive.

Officials in Gulf states reported terminals and refineries were functioning normally across the region, despite an Iraqi missile attack late Thursday that appeared to be aimed at Kuwait's Shuaiba refinery.

The chief of the British armed forces, Admiral Sir Michael Boyce, said Saturday in London that nine oil wells were on fire and that most of Iraq's oil and gas installations had been mined or booby-trapped.

Iraq, however, has denied torching its wells, and said trenches filled with oil had been set alight to reduce visibility and slow the advance of American and British troops.

"Anyway, it cannot be compared to the planned sabotaging of Kuwaiti fields in the 1991 Gulf war," said a Gulf oil official.

Southern Iraq accounted for around half of the country's oil exports until they were halted days before the onset of the war on Thursday.

The main fields around Basra are Zubair, Rumaila, Safwan and Nahr Umar, connected by pipeline to the terminals of Mina Al Bakr and Khor al Amaya, off the Fao peninsula.

The coalition announced on Friday it had secured a beachhead on Fao, but Baghdad said yesterday its forces were still resisting.

Although oil transit through the Strait of Hormuz continued undisturbed on the third day of military action and the Iraqi threat to shipping lanes has decreased, premiums on tankers remained high.

"The threat does not come from Iraq only, you can't exclude possible terrorist acts," said an insurer, recalling last year's attack on a French tanker off the Yemeni coast.

War developments, however, continued to favour a bear market. Crude oil prices have lost more than $10 since they peaked last month over concerns about a war.

New York's benchmark light sweet crude for May delivery skidded 1.21 dollars to 26.91 dollars a barrel Friday, marking a slump from last month's peak of 39.99 dollars to the lowest level this year.

Despite the loss of 1.5 to 2 million barrels per day of Iraqi crude, analysts say the market looks oversupplied because of lower seasonal demand in the northern hemisphere, and because production in Venezuela was nearing recovery.

Except for Saudi Arabia, oil exporters were all producing at maximum capacity ahead of the war to appease the market, and expert say global supply now overweights total demand by around 300,000 barrels per day.

Saudi Arabia had hiked production by around one million bpd in the run-up to war to nine million bpd, but can still pump out an extra 1.5 million bpd.

The oil situation is nevertheless still unstable. "War is not over yet, it can go nasty, and Nigeria is now posing a problem," said an expert.

US oil giant ChevronTexaco said on Friday it had suspended all production in the western Niger Delta because of a violent ethnic uprising, slashing output by 140,000 bpd.

Nigeria is Africa's largest oil producer, with an Opec production quota of 2.018 million barrels per day. The International Energy Agency lists it as the world's sixth largest oil exporter.

Oil Shipments Unaffected in the Gulf

Maher Chmaytelli, AFP

CAIRO, 23 March 2003 — Petroleum shipments from the Gulf were unaffected yesterday despite reports of blazing wells in Iraq’s southern oil fields, shipping sources said.

“From Kuwait to Suez, it’s smooth and steady,” said a London-based shipping executive. Officials in Gulf states reported terminals and refineries were functioning normally across the region, despite an Iraqi missile attack late Thursday that appeared to be aimed at Kuwait’s Shuaiba refinery.

The chief of the British armed forces, Admiral Sir Michael Boyce, said yesterday in London that nine oil wells were on fire and that most of Iraq’s oil and gas installations had been mined or booby-trapped.

Iraq, however, has denied torching its wells, and said trenches filled with oil had been set alight to reduce visibility and slow the advance of American and British troops.

“Anyway, it cannot be compared to the planned sabotaging of Kuwaiti fields in the 1991 Gulf war,” said a Gulf oil official.

Southern Iraq accounted for around half of the country’s oil exports until they were halted days before the onset of the war on Thursday.

The main fields around Basra are Zubair, Rumaila, Safwan and Nahr Umar, connected by pipeline to the terminals of Mina Al-Bakr and Khor Al-Amaya, off the Fao peninsula.

Although oil transit through the Strait of Hormuz continued undisturbed on the third day of military action and the Iraqi threat to shipping lanes has decreased, premiums on tankers remained high.

“The threat does not come from Iraq only, you can’t exclude possible terrorist acts,” said an insurer, recalling last year’s attack on a French tanker off the Yemeni coast.

War developments, however, continued to favor a bear market. Crude oil prices have lost more than $10 since they peaked last month over concerns about a war.

New York’s benchmark light sweet crude for May delivery skidded $1.21 to $26.91 a barrel Friday, marking a slump from last month’s peak of $39.99 to the lowest level this year. Despite the loss of 1.5 million to 2 million barrels per day of Iraqi crude, analysts say the market looks oversupplied because of lower seasonal demand in the northern hemisphere, and because production in Venezuela was nearing recovery.

Except for Saudi Arabia, oil exporters were all producing at maximum capacity ahead of the war to appease the market, and expert say global supply now overweighs total demand by around 300,000 barrels per day.

The oil situation is nevertheless still unstable. “War is not over yet, it can go nasty, and Nigeria is now posing a problem,” said an expert.

US oil giant ChevronTexaco said Friday it had suspended all production in the western Niger Delta because of a violent ethnic uprising, slashing output by 140,000 bpd.

Nigeria is Africa’s largest oil producer, with an OPEC production quota of 2.018 million barrels per day. The International Energy Agency lists it as the world’s sixth largest oil exporter.

Emergency oil stocks not needed, IEA says

Mar. 21, 2003. 08:58 AM

PARIS (AP) — The International Energy Agency said today it sees no reason to release emergency crude oil stocks despite the war in Iraq and civil unrest in Nigeria.

"There is no event in Iraq that makes us fear about a disruption in oil supply," agency spokesman Pierre Lefevre said, noting that the output concerned in Nigeria was not significant in terms of volume.

Thursday, soon after the U.S.-led troops launched an invasion of Iraq, the Paris-based energy watchdog said increased production from OPEC kingpin Saudi Arabia and key member Venezuela, combined with lower demand for heating oil in the United States, helped to reinforce confidence that demand would be met.

The agency has said it will allow the Organization of Petroleum Exporting Countries to have first crack at supplying customers before the IEA takes a decision to release stocks. OPEC has pledged to keep markets well supplied.

Iraq's oil exports through the United Nations' oil for food program, normally around 1.7 million barrels a day, are now virtually at a standstill following the withdrawal of UN staff from Iraq on Tuesday.

To date, ethnic clashes in the oil-rich Niger delta in Nigeria have disrupted more than 250,000 barrels a day of the OPEC member's two million barrels a day output.

Making sense of oil supply & demand in a time of war

Peter Behr, Washington Post Published March 23, 2003 OIL23

At the start of the first Persian Gulf oil crisis 30 years ago, America's hulking, chrome-laden cars covered about 15 miles on a gallon of gasoline. But few motorists gave that a second thought -- not with gasoline priced at 38 cents a gallon.

At the same time, U.S. factories soaked up 43 percent of the nation's energy supplies and members of Congress debated how to address the power of the "seven sisters," the international oil companies that dominated worldwide production.

A generation later, as the fourth Persian Gulf confrontation gets underway, the nation's oil needs and uses have changed, mirroring broad transitions in society and commerce.

Cars have slimmed down in a campaign to boost gasoline efficiency that succeeded in the 1980s but stalled in the 1990s. Persian Gulf kingdoms have supplanted the multinational oil companies as dominant producers. Today, oil companies cautiously manage exploration and inventories, a strategy that played a part in a surge in prices that has continued as war begins in Iraq. From its peak of $40 a barrel last month, crude oil fell below $30 a barrel Wednesday. The benchmark West Texas intermediate crude closed Thursday at $28.61, falling $1.27 on expectations of a swift U.S. victory.

On Monday, gasoline prices nationwide averaged more than $1.70 a gallon, a record for this time of year.

The transformation in oil dates to the 1970s, when prices quadrupled, forcing U.S. industries to change their manufacturing processes to reduce energy costs.

Homes and appliances became more efficient, too, and the amount of energy needed to produce a dollar of gross domestic product dropped by 33 percent from 1973 to 1991.

Soaring pump prices and long gasoline lines in the late 1970s triggered a revolution in the auto industry, as consumers demanded cars that went farther on a tank of gasoline. Congress required that new vehicles get at least 27.5 miles per gallon, beginning in 1985. New cars' performance, led by imports, jumped from 20 miles per gallon at the end of the 1970s to 28 in the mid-1980s. Once that target had been reached, though, it was not raised, and the mileage performance of new cars stagnated.

An expanding and more affluent population, driving bigger cars, boosted gasoline demand 2 percent a year in the past decade.

Shrinking inventories

But the restructuring of the oil industry has left the United States increasingly dependent on gasoline imports to satisfy motorists' needs, said Douglas MacIntyre, a senior oil analyst at the Energy Information Administration. U.S. refineries that manufacture gasoline are operating at or near capacity, he said, "and we aren't building new ones."

Until the 1970s, seven oil companies held the coveted prime oil-production concessions in the Persian Gulf: Exxon, Mobil, Chevron, Texaco, Gulf, Royal Dutch/Shell and British Petroleum. Now the seven sisters are four: Exxon Mobil, ChevronTexaco, Royal Dutch/Shell and BP.

In the view of Daniel Yergin, the author of "The Prize," the largest multinational companies have become bureaucratic corporations, balancing risks to maximize profits and compelled -- despite their size -- to compete for shareholder support and financiers' capital.

One consequence is the oil companies' unwillingness to get stuck with large inventories of high-priced crude oil or gasoline when pump prices start falling, MacIntyre said.

Paul Ting, a managing director of Salomon Smith Barney Inc., estimates that as a result of the wave of mergers in the industry in the past half-dozen years, the seven biggest U.S. oil producers and refiners have cut their crude oil inventories by 115 million barrels.

The U.S. economy stumbled after the Sept. 11, 2001, terrorist attacks, and early last year OPEC cut production and the Bush administration began buying oil for the nation's Strategic Petroleum Reserve. Oil prices began to rise, and U.S. producers let inventories drop.

The inventory numbers are a crucial benchmark of supply and demand for a legion of investors, speculators, and industrial and commercial buyers, who trade oil and oil products on commodity exchanges.

Prices rise

As stocks of crude oil and gasoline in the United States began to shrink last year, traders bid up the prices of oil and gasoline.

Growing concerns about a U.S. confrontation with Iraq began to inflate oil prices in September. A hurricane in the Gulf of Mexico hurt oil production in October, further reducing inventories, and a December strike at oil fields in Venezuela, a critical U.S. supplier, pushed oil prices over $40 a barrel this winter.

Changes in gasoline prices on commodity markets begin to show up at the pumps in as little as a week. The volatility of the system means that energy prices could rise, or fall, rapidly once the uncertainty of the Iraq conflict is resolved, said Adam Sieminski, a Deutsche Bank analyst.

Three main fields are the key to Iraq's oil production, which contributed 5 percent of U.S. oil imports last year, Sieminski said. "If U.S. and British forces can secure them before anyone blows them up, that would be very good news."

That is the bet among a majority of traders on commodity markets, analysts say -- one reason why oil prices have dropped recently.

Oil prices could sink to $25 barrel or lower if the U.S. campaign succeeds, said analyst Peter Beutel, president of Cameron Hanover Inc., in New Canaan, Conn.

Mark Zandi, the chief economist at Economy.com, said, "The markets are priced for a perfect war." If all goes well, the economy will turn upward. "Not roaring back, but back," he added. "If we get anything less than that, we have a problem. If prices don't fall quickly, I'd say we're in a recession in a month or two."

March 21, 2003 Oil prices continued in a virtual freefall By Hil Anderson UPI Chief Energy Correspondent

     LOS ANGELES, March 21 (UPI) -- Oil prices continued in a virtual freefall, dropping more than $1 per barrel on the New York Mercantile Exchange in unusually bearish trading for a Friday when the vital Persian Gulf was at war as American and British forces rolled through the southern oilfields of Iraq.
     NYMEX had been expected to test downward resistance at $27 per barrel and did just that, closing at $26.91, down $1.21 on the day and nearly $9 below the end of last week. Heating oil and gasoline both dipped around 6 cents per gallon.      Traders generally tend to buy up oil on Fridays during times of uncertainty so as not to be caught short if the situation deteriorates and prices soar over the weekend. The past week, however, has been primarily bearish with the market looking ahead to a quick end to the campaign and the erasure of the "war premium" that has tacked around $4 to the price of a barrel of crude and has sent gasoline prices sky-high at the pump.      World wartime oil production this week was only slightly below what it had been last November, Energy Secretary Spencer Abraham said Friday in his latest announcement aimed at reassuring nervous energy markets and consumers.      Abraham said that OPEC production as of Thursday was 26.5 million barrels per day, less than a half-million barrels below output levels seen last November.      "This is despite losing all production from Iraq and also incurring other production losses from Venezuela and Nigeria," Abraham pointed out. "Working with International Energy Agency partners, we continue to monitor global oil market conditions. We appreciate the continued commitment by oil producing countries to ensure stability in the world oil markets."      On the military front, U.S. and British forces secured the southern port of Umm Qasar and were reportedly pressuring the larger oil city of Basra. The Basra, Umm Qasar and the nearby tanker terminal at Mina al-Bakar will give the allies control of Iraq's deep-water harbors on the Persian Gulf.      Umm Qasar is located downriver from Basra and the southern oilfields that allied troops moved into on Friday. Although said to be in a state of disrepair, Umm Qasar was nevertheless functional up until the start of the war and could be ramped up in order to handle both supplies for post-war reconstruction and oil exports that will help pay for the task. Mina al-Bakar was heavily damaged in the first Gulf War but was one of the few oil facilities Saddam Hussein's regime repaired in the subsequent years and is the only Iraqi port on the Persian Gulf capable of accommodating larger oceangoing tankers.