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Opec pledges flood of oil in event of conflict
Oil producers will flood the world market with crude supplies if the US attacks Iraq to prevent spiralling energy costs from strangling global growth, sources in Opec promised yesterday. The 11-member exporters' cartel will lift production-limiting quotas and "pump at will" should conflict in the Middle East put a halt to Iraq's 2m barrels a day in exports. But the cartel declined to offer any immediate relief to the market, where mounting concerns over the repercussions of an attack have driven prices to two-year highs. "Until war starts, there is nothing more they can do," a source said. "More production can't cool prices. They are high because of war hysteria." Upping the quota a little sure would calm that some, but that would bring prices back down and they don't want that, now do they? Analysts fear that a cornered Saddam Hussein will torch his own oilfields and attempt an attack on neighbouring Saudi Arabia, which holds a quarter of the world's reserves. "The market doesn't buy the idea that the war is going to be over in three days and Saddam will go into exile," said Paul Horsnell, an oil analyst at JP Morgan. "It's getting harder and harder to see a benign outcome. Hey! He reads Rantburg! "A more likely scenario is that there is a scorched earth policy by Saddam, western strategic reserves are run down and the war is dragged out." Um, no, I guess he doesn't. Mr Horsnell said oil prices could potentially spike to $50 (£32) a barrel - the highest in real terms since the Arab oil boycott after the Yom Kippur war in 1973 - although he said they were unlikely to stay that high. But even a $5 a barrel increase in prices would cut global growth, according to the International Monetary Fund. Prices eased yesterday as the international divisions over disarming President Saddam widened and traders digested the news from Opec. In London, benchmark Brent crude fell 40 cents to $31.98 a barrel. An attack on Iraq could not come at a worse time for the global market, already struggling to make up for the disruption of Venezuela's supplies from the 11-week strike. Supplies to the American market from Venezuela have slowed to a trickle, reducing US crude stocks to their lowest levels for 30 years. This should be coming back over time; the strike seems to be losing steam. Adding to market nervousness are forthcoming elections in Nigeria, Africa's largest oil producer. "Virtually everything that could go wrong in terms of getting the price level down, has gone wrong, from Venezuela's industry going on strike to the Japanese declaring their nuclear industry unsafe, so the Japanese are buying oil like there is no tomorrow," Mr Horsnell said. Saudi Arabia and the United Arab Emirates are the only two Opec members with enough spare capacity to make up for any more disruptions to supply, analysts said. "One or two countries could volunteer to make up for the loss of supplies should war start on Iraq, but they would need the blessing of other members," the Opec source said. "It would be a temporary exemption, just as long as it takes to compensate for the loss and to cool off the market." Traders are pinning their hopes on America releasing its massive emergency stockpiles in the event of a war. What are the odds on that? Posted by: Steve White 2003-02-18 |
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