Marilyn Radler
Economics Editor
HOUSTON, Apr. 18 -- Despite Iraq's Apr. 8 announcement of a 30-day suspension of oil exports and turmoil at Petroleos de Venezuela SA in Venezuela, the oil market has responded in a muted fashion, according to the International Energy Agency, because such events were already incorporated into a "geopolitical risk premium."
Since February, such a premium has centered on conflicts in the Middle East, and until a few weeks ago, most of it was due to the threat of a US-led war against Iraq. Subsequently, in late March the focus shifted to the Israeli-Palestinian conflict.
This geopolitical risk premium combined with strengthening oil market fundamentals to increase oil prices $7-8/bbl between the last week in February and the first week in April. Since then prices have retreated slightly. The fundamentals driving the price strength are the US economic recovery, falling US product inventories, strong gasoline demand in the US, and reduced supply from the Organization of Petroleum Exporting Countries.
Adding to the surge in prices, since early February speculators have shifted from a significant net short position for oil on the New York Mercantile Exchange to an even larger net long position, said the Paris-based agency. With the exception of gasoline, product price increases in March lagged those of oil. In the US and Europe, fundamentals led gasoline price gains to outpace crude price gains, while heating oil and gas oil prices were relatively weak worldwide at the close of an unusually warm winter in all three regions of the Organization for Economic Cooperation and Development (OECD).
Refining margins during March strengthened in the US, weakened in Singapore, and were little changed in Europe. US refiners—which produce more gasoline than refiners elsewhere—benefited the most from widening gasoline-to-crude spreads. "Improved margins also reflect the impact of the run cuts that have taken place, as well as lower product inventories. The US is where most of the OECD inventory overhang has been, and the rebalancing process there appears to be well under way," IEA commented.
Production
Preliminary estimates indicate that worldwide oil production in March was unchanged from the previous month at 76.3 million b/d. Lower supply from non-OPEC oil exporters offset production gains from the OPEC 10 (excluding Iraq), which increased output 440,000 b/d. Saudi Arabia led this increase with a 240,000 b/d jump from February.
Non-OPEC supply declined 480,000 b/d last month. The largest reduction came from Norway, which lowered output an estimated 320,000 b/d in line with its pledge to reduce first quarter production. IEA noted that early indications suggest Norway met its target by shutting in some North Sea fields. US crude production in March declined 20,000 b/d to 5.88 million b/d, although Alaskan production was unchanged from the previous month.
The agency increased its non-OPEC production growth forecast for 2002 by 80,000 b/d to 1.04 million b/d, with the majority of the revisions coming from non-OECD, notably Russia, China, Brazil, and Angola. The forecast for Canadian production is now lower due to stagnant crude output from Alberta and Saskatchewan, and IEA continues to lower its UK supply forecast due to weaker-than-expected January production. In the Netherlands and Italy, the production forecast has increased following the smooth start-up of new fields.
Contact the author at [email protected]
