Iraq spreads trouble on oil supplies By Nigel Wilson 28oct00

IRAQ has added a new but not totally unexpected dimension to the world oil price crisis.

By threatening to suspend its UN-controlled oil exports in November, Iraq is reasserting pressure to remove UN sanctions. Its target B as ever B is the US.

With US presidential elections less than two weeks away and crude oil prices pushing fuel prices to record levels in the US, it was almost inevitable that Iraq would make some political statement.

Iran's suspension of crude oil shipments unless it receives payment in euros rather than US dollars is much more about politics than an expression of Iraq's determination to turn the world oil pricing structure on its head.

Speculation about the Iraqi suspension was enough to reverse the downward trend in crude oil prices following the easing of Palestinian and Israeli tensions, which allowed prices to drift lower earlier in the week.

Crude oil for December delivery rose US75c, or 2.3 per cent, to $US33.71 per barrel in New York B meaning crude oil costs about 45 per cent more than a year ago.

Iraq supplies almost 4 per cent of traded oil and could double output if sanctions were lifted and a relatively small sum invested in restoring some of the country's damaged delivery infrastructure.

But the US remains adamantly opposed to removing sanctions against Iraq B and with the support of Britain and the European Union B insists that Saddam Hussein must agree to human rights reform before trading relations can be restored.

The simple equation is that crude oil prices B although high B are not the real issue.

Refineries around the world are running below capacity; in our region, Singapore processing is about 65 per cent of capacity.

There are many refineries either running below production capacity or out of commission for maintenance in North America.

Bryan Nye, executive director of the Australian Institute of Petroleum, argues that supply of crude oil is not the problem.

"The processing industry is apparently incapable of meeting the expected heating oil demand from the northern hemisphere at the present stage," he said.

"Thus the crude oil price has a big speculative element in it."

This suggests that the much heralded increase in production from the OPEC nations next week, under a formula that allows a 500,000 barrels per day production increase if the price remains above $US28 per barrel for more than 28 days, will have little effect on reducing prices in the short term.

But high crude oil prices will have one domestic effect in the coming week.

A Council of Australian Governments meeting in Canberra on Friday B the first for 18 months B will see pressure again being placed on the Howard Government to halt the consumer price indexation of petroleum products excise.

John Howard does not want petrol on the COAG agenda, but the Queensland and West Australian premiers are determined to ensure the subject is raised.

http://theaustralian.com.au/common/story_page/0,4511,1355832%255E643,00.html

-- Martin Thompson (mthom1927@aol.com), October 27, 2000