Oil price surges $32 a barrel on Iraq supply fear

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Oil price surges $32 a barrel on Iraq supply fear

LONDON: The price of oil spiked upwards again towards $32 a barrel on Thursday following a report that Iraq could soon halt crude deliveries because of a dispute over currency payments with the United Nations, analysts and dealers have said.

A barrel of Brent North Sea benchmark crude for December delivery advanced 47 cents to $31.85 a barrel, before easing slightly.

Prices had fallen on Wednesday, with Brent closing at $31.38 while in New York a barrel of light sweet crude slipped to $32.96.

But the market on Thursday found its feet again as investors digested a report in the Middle East Economic Survey (MEES) that Iraq could halt oil sales.

"There is a serious possibility that Iraqi oil exports could be suspended next week as a result of the delay at the UN in deciding whether to approve Baghdad's instructions to its customers to pay for Iraqi oil in euros as of November 1," the MEES article said.

"The move into the euro has a high priority on the Iraqi political agenda and it is unclear how Baghdad might react to the delay," it said, adding that the market was uncertain whether Iraq would dig in and "refuse to export oil unless euro-denominated letters of credit are opened by November 1."

Iraq exports more than two million barrels of oil a day, an important volume given the extremely tight situation on the oil market at the moment, which is short on reserves as winter approaches.(AFP)

http://www.timesofindia.com/today/26busu2.htm

-- Martin Thompson (mthom1927@aol.com), October 26, 2000

Answers

Iraqi Supply Threat Propels Oil Higher October 26, 2000

By Richard Mably

LONDON (Reuters) - Oil prices bounded higher on Thursday as fears mounted that maverick producer Iraq might suspend exports next week because of a row over the denomination of payments for its crude exports.

London Brent futures gained 54 cents to $31.90 a barrel after an Iraqi source said Baghdad was likely to suspend sales from November 1 if its proposal for payment in euros rather than U.S. dollars was rejected.

``Iraq is unlikely to implement oil contracts if the United States objects to euro payments for Iraqi oil and Baghdad insists payment be made in euros,'' an Iraqi source told Reuters.

``This is a political issue and not a technical matter,'' he said.

Iraq, still bound by United Nations sanctions for its invasion of Kuwait in 1990, exports oil under the U.N.'s oil-for-food program.

Iraqi oil sales of some 2.3 million barrels a day account for five percent of world oil exports.

An Iraqi suspension would reverse 70 percent of the combined 3.2 million barrel-a-day increase in production this year from OPEC nations. With exports to the U.S. of 750,000 bpd, Iraq in August was the sixth largest supplier to the United States.

``If Iraq goes through with this it could push prices back to $35-$37 for Brent in which case the U.S. might have to step in and release more of their strategic reserves,'' said Leo Drollas at the Centre for Global Energy Studies.

``It appears to be a genuine threat but I'd be surprised if we're looking at a protracted suspension,'' said Lawrence Eagles of GNI. ``It's a political gesture,'' he added.

U.N. COMMITTEE MEETS OCT 30

The United Nations sanctions committee meets on October 30 to discuss Iraq's proposal that from November 1 all letters of credit for crude payments be opened in euros rather than dollars.

Oil trade worldwide normally is conducted in dollars.

The committee, which is to receive a written report by Thursday from the U.N. staff on the issue, is split on whether it should allow the switchover to euros, diplomats in New York have said.

Lifters of Iraqi barrels appear to have no objection in principle to a switch to euro payments but are worried about delays over procedural wrangles.

Saudi Arabia, OPEC's biggest producer and the only country with any significant spare capacity, has said recently that it would cover any disruption in Iraqi supplies.

But industry monitors estimate Riyadh already is pumping beyond its official OPEC quota at more than nine million barrels a day and would not be able to cover all of an Iraqi shortfall.

``The Saudis can probably put another million barrels a day on the market in a matter of weeks,'' said Drollas.

OPEC already is on the brink of announcing another 500,000 bpd of crude supply under a cartel price stability mechanism that looks set to be triggered at the end of this week.

The mechanism stipulates the extra production if a basket of OPEC crudes stays above $28 for 20 working days from the beginning of the cartel's latest agreement on October 1.

With most in OPEC already pumping to capacity, however, it will be up to Saudi Arabia to provide any real extra oil.

The International Energy Agency also has said that it would consider ordering a release of emergency stocks held among industrialized nations in the event of a genuine supply disruption.

Latest data from the United States show that hefty draws in commercial crude stocks have finally abated, but inventories still remain close to the lowest levels in a quarter of a century.

http://www.individual.com/story.shtml?story=c1026070.800

-- Martin Thompson (mthom1927@aol.com), October 26, 2000.


Lawrence Eagles of GNI i beleve is saddly mistaken, it's not a "political gesture" but a tactical and strategic move... Watch and see, the effects of this move, will cause the other major suppliers to jump on board too! The very best wars are not fought with bullets but brains. lee b.

-- Lee Blocher (cblocher@northernway.net), October 26, 2000.

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