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Saudi Arabia pledges OPEC will make up for oil shortage from Iraq

By Bruce Stanley, Associated Press, 6/5/2001 06:19

VIENNA, Austria (AP) OPEC will make up for any shortage in crude oil supplies resulting from Iraq's suspension of exports, the oil minister for Saudi Arabia, the cartel's largest producer, said Tuesday.

One day after Iraq halted most of its crude shipments, Saudi Arabia's Oil Minister Ali Naimi gave his first public reassurance to oil markets and importers.

''I can assure you there will be no shortage in the market,'' Naimi said.

Delegates of the Organization of Petroleum Exporting Countries were meeting later in the day in Vienna to assess demand for oil and to set output targets. OPEC officials are expected to maintain production at current levels, but Iraq's move had cast some doubt on the meeting's outcome.

Naimi gave no details about how OPEC members might replace the daily shipments of some 2 million barrels that Iraq began withholding Monday. However, he suggested that OPEC would not intervene by boosting production right away, due to uncertainty about the duration of the Iraqi suspension.

''The market is stable and everybody is happy,'' Naimi said.

OPEC has an official output target of 24.2 million barrels a day, and its members pump about two-fifths of the world's crude. Although Iraq belongs to OPEC, it doesn't participate in production agreements with the group's other 10 members. Saudi Arabia is OPEC's No. 1 producer and the only cartel member able to quickly make up for the loss of Iraq's oil. Most of the other members are pumping at or near their limits.

Delegates have started discussing the possibility of holding an emergency meeting in July, depending on the status of the Iraqi export suspension, a senior OPEC source said.

Crude prices initially shot higher Monday on Iraq's announcement, then lost those gains as it became apparent from other OPEC ministers that the group was unlikely to allow a shortfall to occur.

''OPEC will manage the market, and I'm not concerned (about) any shortage,'' Iran's Oil Minister Bijan Namdar Zangeneh said Monday.

Non-OPEC member Russia said Tuesday it will not boost oil exports in response to Iraq's cut, saying OPEC can pick up the slack.

The cartel's members meet as motorists in the United States are facing stiff prices at the pump, with motorists in some places paying more than $2 a gallon for gasoline. OPEC says bottlenecks at U.S. refineries are the cause of the high prices.

Some analysts said the worst of the summer's high gas prices may already have passed.

''I personally think we're over the top,'' said Leo Drollas, chief economist of the Center for Global Energy Studies in London. He noted that U.S. refineries were operating at 96 percent of capacity and that gasoline imports were flooding into the United States.

Still, Iraq's move triggered a wave of panic buying of crude on Monday. July contracts of North Sea Brent crude leapt to a six-month high of $29.71 on the International Petroleum Exchange in London, before they falling back. July Brent rose to $29.28 in early trading Tuesday.

OPEC president Chakib Khelil took the lead in trying to reassure markets.

''We're going to make sure that demand is met. ... I'm not worried,'' he told reporters. He added that crude supplies were ''good and sufficient'' to meet global demand.

Obaid bin Saif Al-Nasseri, oil minister for the United Arab Emirates, said OPEC hasn't ruled out increasing output if the situation warrants it.

''But we still have to study further it's too early to give a clear response,'' he said.

Bill Edwards, a Houston-based energy consultant, said OPEC probably would respond to Iraq's halt in exports by doing nothing.

''They don't know what Iraq's going to do,'' he said.

Iraqi Deputy Oil Minister Taha Hmoud Mousa dispelled some of that uncertainty, telling reporters on Monday that his government has suspended exports for one month. The halt was made as a protest against the U.N. Security Council's decision to extend by one month instead of the usual six months the program under which Iraq can sell oil.

The Iraqi government is desperate to shake off economic controls imposed by the United Nations after Iraq's 1990 invasion of Kuwait. It has disrupted crude exports before, and its shipments have been somewhat sporadic since December.

-- Anonymous, June 05, 2001

Answers

As I understand it, the OPEC nations would prorate their share of the extra production, but not too long ago only the Saudis and maybe two others (Kuwait and ?) had any extra capacity available. Maybe the recent pullbacks provide enough cushion? Meanwhile, I'm assuming the Iraq has stepped up its smuggling operations.

-- Anonymous, June 05, 2001

BBC Tuesday, 5 June, 2001, 16:14 GMT 17:14 UK

Opec delays extra oil production

The Organisation of Petroleum Exporting Countries (Opec) has postponed a decision on whether to pump more oil in response to Iraq's self-imposed export ban.

Opec ministers said on Tuesday that ample reserves of crude oil and stable prices meant there was no need to panic over Baghdad's decision to suspend deliveries under the United Nations oil-for-food programme.

They agreed to leave output at 24.2 million barrels a day for 10 member countries and to gather for an emergency session to review the situation on 3 July.

Oil traders took comfort from the decision and Brent crude in London afternoon trade eased 14 cents to $29.12 a barrel.

Opec has been trying to find an answer to the dilemma posed by Baghdad's sudden withdrawal on Monday of nearly 5% of world oil exports.

'Markets need time'

Unsure now of the longer-term impact of Iraq's decision on oil prices, ministers preferred to wait a month.

Qatari Oil Minister Abdullah al-Attiyah said: "Opec and the market needs time to assess if Iraq's decision will cause a crisis."

Ministers were loath to jack up production too quickly for fear that Baghdad might repeat the pattern seen during its previous self-imposed outages - and resume exports shortly.

Saudi Oil Minister Ali al-Naimi indicated that Opec would need to take action and add to production if the Iraqi export ban lasts for the month that Iraq is threatening.

"We do not know what Iraq's gameplan is," said Mr Naimi.

"Will this last day, a week, a month? We don't know what the gameplan is."

But he agreed that a month-long suspension of Iraq's two million barrels daily would leave a shortfall in supplies.

"Yes, 60 million barrels out of the market is a shortage," he said.

Iraq's position

Iraq halted deliveries on Monday under the oil-for-food exchange after the Security Council voted to extend the programme by only a month, instead of the normal six-month renewal.

Iraq's Opec representative, Taha Humud Musa, said supplies would stay on hold for the duration of the extension to early July.

Beyond that, said Iraqi OPEC delegates, Baghdad would have to look again at policy.

Analysts say that, with or without Iraq, OPEC will need to raise production sometime soon to meet rising demand as refiners build stocks for winter.

Gary Ross of leading US consultancy PIRA Energy said: "There's plenty of oil out there for now but the market was always going to need more in the second half of the year and with Iraq out it's going to need a lot more.

"I think the market may be misreading the situation.

Supply will be much tighter in a month's time."

After slicing supply earlier this year by 2.5 million barrels-per-day, producers have plenty of spare capacity.

But dealers said a lengthy absence by Iraq could stretch the cartel and see a return of the premium attached to prices that drove crude up to $35 a barrel last autumn.

Such a price hike could feed through to petrol pumps in Europe, with some analysts predicting a 50p increase in prices in the UK, taking the price of a gallon over £4.

Smuggling crackdown

Iraq analysts said Baghdad had moved quickly to stop oil sales in a bid to influence debate at the United Nations over a revised package of sanctions.

An Anglo-US proposal would lift restrictions on civilian imports to Iraq but crack down on oil smuggled across the Iraqi border, the main source of hard cash for President Saddam Hussein's government.

Iraq is continuing to supply its neighbours with oil.

Turkey, Iraq and Jordan together receive some 300,000 barrels a day at discounted prices, worth at least $1.5bn a year.

-- Anonymous, June 05, 2001