Oil markets calmer as Iraq's embargo fails to gain support
Tuesday, April 9, 2002
AP Business WriterLONDON (AP) -- Oil prices retreated Tuesday as Iran and Libya held back from joining Iraq's suspension of crude shipments to countries allied with Israel.
OPEC Secretary-general Ali Rodriguez said the oil producers' group is opposed to an oil embargo, and some analysts expected Saudi Arabia and other moderate OPEC members to quietly boost their output to cover any serious shortfall in global supplies.
The incentive of higher oil prices might encourage non-OPEC producers such as Russia and Mexico to do the same, analysts said.
Signs of a partial Israeli withdrawal from Palestinian territories also helped to calm futures markets, a day after Iraq's cutoff triggered a 6 percent surge in prices. Markets seemed initially to shrug off a flare-up in fighting Tuesday in which at least 13 Israeli soldiers died.
The European Union's head office said it was convening a special meeting later this week to discuss rising oil prices. However, the European Commission played down fears of a looming world fuel emergency.
"We do not consider we are in a situation of crisis," EU Energy Commission spokesman Gilles Gantelet told reporters in Brussels, Belgium.
Prices for May contracts of Brent crude futures slipped by 92 cents a barrel to $26.10 in late trading in London. May contracts of light, sweet crude eased 71 cents lower to $25.83 a barrel in New York.
Israel withdrew Tuesday, under heavy U.S. pressure, from two Palestinian towns, although its soldiers entered other areas of the West Bank. Secretary of State Colin Powell's planned visit to Israel late Thursday added to a perception that the United States was becoming more involved to try to secure a cease-fire in the Middle East, home to two-thirds of the world's proven oil reserves.
"That is the key theme of the next few days: what kind of news can we expect to see out of the West Bank," said Hans Redeker, head of global currency research for BNP Paribas.
Iraqi President Saddam Hussein announced Monday that he was halting oil exports for 30 days or until Israel withdrew from the territories. A political dispute at Venezuela's state-run oil company exacerbated the turmoil.
Markets took comfort in the absence of any action or statement from Iran, the second-largest producer in the Organization of Petroleum Exporting Countries, in support of Iraq's embargo. Iran, together with Libya, had earlier expressed sympathy for the idea of using oil as a weapon against Israel's allies, chiefly the United States.
"At the moment, they (Iranians) value their revenues from oil far more than they do support for Iraq or the Palestinians," said Ali Tahghighi, an analyst at Barclays Capital.
Iraq was the fifth-largest supplier of imported oil to the United States in January, shipping nearly 1 million barrels a day, according to the Department of Energy's Energy Information Administration.
OPEC's Rodriguez said the group saw no reason to take any action. He noted that global oil inventories are high and that the U.S. Strategic Petroleum Reserve is well-stocked.
Saudi Arabian Oil Minister Ali Naimi also rejected the idea of using oil as a political weapon, in remarks published Tuesday in the London-based Arabic newspaper Al Hayat.
"During many crises in the past, the kingdom (of Saudi Arabia) and OPEC showed their commitment to and support for the world oil market," the paper quoted Naimi as saying.
The United States and other rich oil importing nations have a safety net in the form of strategic oil reserves they established after the 1973 Arab oil embargo.
The International Energy Agency, based in Paris, can tap into a pool of about 4 billion barrels of oil and refined products maintained by its member countries. Those reserves amount to about five years of Iraqi production, based on February IEA estimates.
Nonetheless, President Bush worried that rising oil prices could hurt the nation's economic recovery.
"Saddam stands up and announces he's going to try to organize an oil boycott," Bush said. "The world's not going to follow him, but it just goes to show how important it is to diversify our supply away from places like Iraq."
Besides 11-member OPEC, possible sources of fresh crude include Mexico, which is in a financial squeeze and needs to increase its export earnings. Redeker of BNP Paribas said Russia is likely to raise its production later this spring by at least 500,000 barrels a day.
Russia's Deputy Prime Minister, Viktor Khristenko, said his country has no immediate plans to end a voluntary curb on its oil exports, but he suggested it might do so in mid-May, according to the ITAR-Tass and Interfax news agencies.
In Venezuela, labor and business groups staged a nationwide strike Tuesday in support of dissident workers at the state oil company, Petroleos de Venezuela. At least 20 oil tankers waited offshore Tuesday as workers refused to load them. Overall production was severely hampered but exact figures were not available.
Iraq and Venezuela jointly export about 4.5 million barrels of oil a day. Venezuela is among the top four oil exporters worldwide, sending nearly 1 million barrels of crude daily to the United States alone. That makes it the No. 3 U.S. supplier.
Oil provides 80 percent of Venezuela's export revenue and half of its government income.