Iraq will continue to push oil markets for months to come

Mar 12, 2002 01:00 AM

Iraq has jolted oil markets and will continue to influence decisions taken by key players in the sector for several months to come, the International Energy Agency said in its monthly report. The agency lists three factors affecting crude oil prices -- the threat of US military action against Iraq, the UN oil-for-food program and pricing mechanisms imposed on Baghdad through the UN sanctions regime.
But experts at the Paris-based agency said they did not think military action against the regime of Iraqi leader Saddam Hussein was imminent, as such an offensive would take months of preparation. The agency said a potential change in the UN oil-for-food program established in December 1996 in Iraq was reason for concern, as it could lead to the complete suspension of Iraqi oil exports.

The scheme was set up to soften the impact of a total trade embargo imposed on Iraq after it invaded Kuwait in August 1990. Iraq, a member of OPEC, is allowed to export crude oil under UN supervision and to use part of the revenue to import food, medicine and other necessities.
The current phase of the oil-for-food program is set to run until the end of May, but the IEA said Washington and London were likely to push the UN Security Council to adopt "smart sanctions" against Baghdad. Russia vetoed the measure in May 2001 but could change its mind due to newfound cooperation with the United States in the global war on terrorism, the agency said.
The IEA said pricing mechanisms imposed on Iraq had dissuaded buyers, who were wary of placing orders without knowing the price, causing exports to drop by 500,000 bpd since last autumn. Global oil production in February fell by 320,000 bpd to 75.9 mm bpd from the previous month amid a continuing decline in demand, the IEA said in its report.

The agency said it had lowered its forecast increase in demand for 2002 to 420,000 bpd, compared with a forecast demand rise of 500,000 bpd seen in its monthly report in January. OPEC oil production fell by 390,000 bpd to 22.3 mm bpd in February from the figure for the previous month, the lowest level in a decade but above the cartel's target ceiling, the IEA said.
The monthly IEA output figure excludes Iraq, which currently supplies around 1.5 mm bpd to world markets. In contrast to the cartel cutback, exports of crude and petroleum products by Russia and other former Soviet countries rose by 270,000 bpd in February to 5.08 mm bpd, IEA said.

Oil prices firmed last month, reaching $ 22 per barrel for benchmark Brent crude, but remain volatile. OPEC's basket oil price rose to $ 22.44, back in the oil cartel's $ 22-28 target band for the first time since last September, OPEC said. The price, an average used by the cartel to set its production policy, slumped to as low as $ 16 in the wake of the September 11 terror attacks in the United States, amid weakening world demand. Oil prices have surged again on world oil markets in recent days, notably on fears of US-led military action against Iraq.

Source: AFP
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