CGES: Iraqi exports delayed amid OPEC glut

• OPEC Second Quarter Crude Oil Output [20901 bytes]

U.S. government and influential figures in Iraq are united in wanting to see limited Iraqi oil exports delayed.

At the same time the Organization of Petroleum Exporting Countries stands to benefit from current high prices despite the group's overproduction.

This is the view of London's Centre for Global Energy Studies (CGES), which said the prospects of an early start to Iraqi oil exports under United Nations Resolution 986 now seem unlikely.

Meanwhile, Middle East Economic Survey (MEES) has reported new production estimates for OPEC members that show countries that were producing flat out earlier in the year continued to do so in June (see table).

MEES said Venezuela continued to produce more than 3 million b/d, about 661,000 b/d above its agreed quota. Nigeria and Indonesia were also keen revenue-chasers, and Qatar and Algeria maintained high output.

Iraqi supplies delayed?

"The distribution plan for humanitarian supplies submitted by Iraq at the end of last month was firmly rejected by the U.S.," said CGES, "even before the U.N. had had time to consider it fully."

CGES notes the U.S. government claims Iraq is trying once more to convert limited oil sales into a partial lifting of sanctions by including in the plan the purchase of computers, telecommunications and oil drilling equipment, and spare parts for helicopters.

"This goes beyond the basic humanitarian objectives of Resolution 986," said CGES. "The plan also fails to acknowledge the independent role of the U.N. in supplying aid to the Kurds in the north."

Acceptance of the plan by the U.S. will require revisions, said CGES, and this process is expected to take some time, even if Iraq yields to U.S. as it has done before.

"It is possible that factions in Iraq and the U.S. do not want an early agreement on this issue," said CGES. "Powerful factions in Iraq may not be keen to see humanitarian aid flow, since it will undermine their lucrative business operations.

"Moreover, it is still not clear whether Iraqi leader (Saddam Hussein) himself is prepared to implement Resolution 986, since his real objective is to get sanctions lifted.

"As the U.S. has always been less than enthusiastic about limited oil sales, presuming that they will prolong the life of Saddam Hussein's regime, the two countries' interest in delaying the start of Iraqi oil exports for as long as possible may indeed coincide."

Delays in starting Iraqi oil exports can only improve the short term outlook for oil prices, said CGES. Growing demand and unexpected shortfalls in non-OPEC production are said to have greatly strengthened OPEC's position in first half 1996.

But CGES said non-OPEC production is catching up, and competition among producers is set to get tougher in the next few months. Saudi Arabia reportedly has cut formula prices to the U.S. to maintain market share in the face of rising North Sea and Latin American output.

CGES reckons oil prices will now weaken in the fourth quarter, once Iraqi oil exports get under way. "It would be a very different story, though, if Iraqi oil sales were to be delayed further," the think tank said.

Price forecasts

If Iraqi oil exports begin at the start of the fourth quarter, CGES predicts the price for OPEC's reference basket of crude oils will average $17.10/bbl in the fourth quarter, $16.90/bbl in first quarter 1997, and $16.40/bbl in second quarter 1997.

If Iraqi oil exports are delayed until first quarter 1997, CGES expects OPEC basket crudes to average $17.80/bbl in the fourth quarter, $18.20/bbl in first quarter 1997, and $17.40/bbl in second quarter 1997.

Only last month, when Iraqi oil sales appeared imminent and OPEC failed to make room for Iraqi exports in its quotas agreement, CGES was predicting OPEC basket crude would plummet to $15/bbl by mid-1997 (OGJ, July 1, p. 34).

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