WATCHING THE WORLD OPEC'S SECOND QUARTER WORRIES

With Roger Vielvoye from London As oil producers know from bitter experience, world crude oil markets are fickle beasts. Only a couple of months ago, international traders were worrying the price up over growing fears of a tight supply situation during the winter Now markets have turned their collective attention to a possible crude oil glut in the spring, in the process triggering a downward price trend. With hindsight, it's easy to say that concern about winter supplies was never

Dec. 16, 1991

3 min read

As oil producers know from bitter experience, world crude oil markets are fickle beasts. Only a couple of months ago, international traders were worrying the price up over growing fears of a tight supply situation during the winter Now markets have turned their collective attention to a possible crude oil glut in the spring, in the process triggering a downward price trend. With hindsight, it's easy to say that concern about winter supplies was never warranted, as events are currently proving. Worrying about a spring glut is another matter.

Unless the Organization of Petroleum Exporting Countries manages to surprise the markets with a return to a ceiling on production through a viable quota regime, then a short but damaging period of quite severe oversupply is in the cards.

When OPEC's ministerial monitoring committee meets Feb. 12 to formulate second quarter policy, it will have to face the fact that demand after March is likely to drop by 2-3 million b/d.

It's the kind of scenario familiar to OPEC. The difference in 1992 will be that as demand for crude begins its seasonal slump, one or possibly two members-Kuwait and Iraq-will be increasing production as quickly as possible to make good losses from the Persian Gulf war.

KUWAITI STATUS

With current estimates, confirmed by Kuwaiti Oil Minister Hamoud al-Ruqbah after last month's OPEC ministerial meeting, reconstruction of production facilities in the emirate should allow output to rise from the current level of 350,000 b/d to 650,000 b/d in January and 950,000 b/d by midsummer.

Accordingly, Kuwait's average production capacity in the second quarter should be 750,000-850,000 b/d. Kuwait has made it clear that in the return to individual national quotas, it expects at least the 1.5 million b/d it had before Iraq's August 1990 invasion plus its proportional share of any increase from the mid-1990 level. For the Kuwaitis, it is immaterial whether the quota can be fulfilled at this stage.

IRAQI STATUS

The date for restoration of Iraqi production remains a mystery. The Iraqi people desperately need the food and medicines that could be bought with the post-reparations share of the first $1.6 billion worth of crude sales approved by the United Nations.

Iraq continues to present a multitude of reasons why it cannot conform to the U.N.'s conditions of sale but could be preparing for a small compromise that would allow exports to resume.

The Middle East Economic Survey confirmed reports Iraq is continuing to work on the restoration of its tanker export capability through war damaged terminals at the head of the gulf (OGJ, Dec. 9, Newsletter). The main target is to get two of the four berths at Mina al-Bakr operational to allow an export capacity of 300,000 b/d by the end of January and 700,000 b/d by the start of the third quarter.

The U.N. resolutions covering resumption of exports currently specify exports through the Turkish Mediterranean port of Ceyhan, but if Iraqis could negotiate a dispensation to allow use of the repaired gulf terminal, it might provide Baghdad with a facesaver that would make the more onerous crude sales conditions acceptable.