PRICES SEESAW AMID PEC DISARRAY

Oil prices rallied last week as the threat of Iraq's return as an exporter faded. That occurred despite the postponement for a few weeks of a meeting by Organization of Petroleum Exporting Countries members to decide market steadying tactics.

Aug. 2, 1993

6 min read

Oil prices rallied last week as the threat of Iraq's return as an exporter faded.

That occurred despite the postponement for a few weeks of a meeting by Organization of Petroleum Exporting Countries members to decide market steadying tactics.

Brent crude oil for September delivery closed at $17.24/bbl July 27, having bottomed at $15.90/bbl July 19 (OGJ, July 26, Newsletter). On the New York Mercantile Exchange, light, sweet crude futures for September delivery closed July 27 at $18.42/bbl vs. $17.09/bbl for August delivery a week earlier. The earlier levels marked 3 year lows in those oil prices.

Traders credited the recovery to suggestions that Iraq's talks with the United Nations in New York over renewed exports could be put off until September, reported London's Financial Times.

Meantime, bickering and finger pointing persist among key OPEC producers blaming each other for sagging oil prices. Tensions are notably higher between OPEC heavyweights Saudi Arabia and Iran.

Some estimates have OPEC producing as much as 700,000-800,000 b/d over its official ceiling of 23.58 million b/d, others at slightly more than half that level. Against this backdrop, the resumption of Iraqi oil exports could cause oil prices to plummet to $15/bbl or less, some analysts project.

SADDAM'S MACHINATIONS

Iraq originally asked permission to sell $1.6 billion worth of oil to fund humanitarian work within Iraq. Financial Times said President Saddam Hussein changed tack, pressing for full removal of U.N. sanctions, which could take months to negotiate.

If approved, Iraq could export 550,000 b/d of crude oil for 6 months beyond current levels.

Leo Drollas, chief economist at Centre for Global Energy Studies (CGES), London, said Saddam's more confident stance was based on sales of excess Iraqi products output to Iran for dollar payments. Foreign currency helped strengthen Saddam's gnp on power in Iraq.

Iraq currently produces 500,000 b/d, said Drollas, leaving 200,000 b/d for export since Iraq's requirements are estimated at 300,000 b/d. Iran's shortage of middle distillates is being eased by import of Iraqi products.

Drollas said stockpiling lay behind the weakness of the market. Revised International Energy Agency statistics were said to reveal that oil demand had been lower than expected for some time among countries outside the Organization for Economic Cooperation & Development.

Lower than expected demand coupled with current overproduction by OPEC members was causing stockpiling, which helped aggravate recent low prices. Fourth quarter prices promise to be stronger, provided OPEC members avoided a free-for-all, he said.

CGES put OPEC June production at about 24 million b/d, about 450,000 b/d above quota (OGJ, July 12, p. 28). Iran and Nigeria were said to be the main culprits, with overproduction estimated at 235,000 b/d and 100,000 b/d, respectively.

EMERGENCY MEETING POSTPONED

An OPEC official said OPEC Pres. Jean Ping's round of talks with Middle Eastern members had not reached a consensus. The planned emergency meeting had therefore been postponed until mid-August to allow Ping to complete the tour.

Meanwhile, Ping was reported to have met Kuwaiti Oil Minister Ali Al-Baghli in London. Al-Baghli was said to have suggested Kuwait might hold its planned output increase to 2.16 million b/d until October, if other members curbed their production (OGJ, July 12, p. 28).

Kuwait has rejected its quota of 1.6 million b/d and plans the phased output increase to make up for revenue lost during the Iraqi takeover of the emirate and to finance reconstruction.

Ping is expected to visit Iran and the United Arab Emirates and is expected to set a date for the emergency meeting after his return late last week.

Although Iran renewed its call for an emergency meeting, after meeting with Nazer, Ping said he needed more time to decide whether to call for an OPEC meeting.

Associated Press quoted Saudi sources as saying the kingdom was blocking the emergency meeting to avoid pressure from other members to curb its output.

Meantime, a key Iraqi government newspaper accused Saudi Arabia and Kuwait of deliberately undermining oil prices to allow the U.S. to stockpile low cost oil before the winter heating season, AP reported. OPEC's production monitoring committee is scheduled to meet Sept. 25th, said the official. If market pressures do not change dramatically soon, OPEC members may not meet before then.

IRAN'S WARNING

OPEC overproduction coupled with Iraq's bid to recommence oil exports have created OPEC's worst crisis since 1986, when oil prices abruptly collapsed, contends Iran's petroleum minister, Gholamreza Agazadeh.

Agazadeh said on Tehran radio late last month Iran opposes any increase in OPEC production stemming from Iraq's possible return to the market. He called on other OPEC members to accommodate Iraq within the existing production ceiling and said Kuwait should be persuaded to quotas agreed at the last OPEC meeting.

"Lower production by other OPEC members and the cooperation of non-OPEC countries can balance the oil market," he said.

An Iranian oil ministry official said Iran would be willing to cooperate with other producers to prevent prices from falling further,

"Iran is presently capable of producing 4-4.5 million b/d but refuses to do so out of a commitment it has made to the organization," the official said.

Iran's current quota is 3.34 million b/d.

SAUDI VIEW

Saudi Oil Minister Hisham Nazer accused Iran of being solely responsible for the recent slump in oil prices, the official Saudi news agency SPA reported.

"All oil publications unanimously agree that Iran has exceeded its quota by more than 277,000 b/d in June," SPA quoted Nazer as saying. "By so doing, Iran is solely responsible for the fall in prices."

Some analysts put Iran's overproduction in June at as much as 350,000 b/d.

The day before, Saudi Arabia dismissed Iranian calls for OPEC's biggest producer to cut its production, claiming to adhere to its quota of 8 million b/d.

Iran and some other OPEC members have called on Saudi Arabia to return to its quota of 5.3 million b/d in place before the Persian Gulf crisis and war in 1990-91 took Iraqi and Kuwaiti oil exports off the market.