All eyes on OPEC meeting

25 April 2003
Oil prices remained strong ahead of OPEC's emergency meeting on 24 April. With a succession of OPEC ministers pronouncing that the market is oversupplied, traders were asking when and by how much production would be cut. 'The markets have already priced in a fairly sizeable production cut,' says a London-based analyst. Dated Brent was trading at $25.40 on 23 April and June crude futures stood at $25.60.

Iranian Oil Minister Bijan Namdar Zanganeh has been a lone voice calling for OPEC's official 24.5-million-barrel-a-day (b/d) ceiling to be lowered. The consensus among analysts and producers is for a pledge to return to quota compliance. 'I think we first have to tackle compliance,' UAE Petroleum & Mineral Resources Minister Obeid bin Saif al-Nasseri said on 23 April. 'Then we shall see if there is a need to cut.'

The key question is when the output restraint would take effect. 'Early May is too early to enforce any output cut unless there is an emergency situation,' Zanganeh said on 19 April. Says Sarah Emerson, managing director of the US' Energy Security Analysis: 'I would expect the reduction to take effect from June at the earliest, and possibly not until July. Too many supply agreements are already in place.'

Despite producers' oversupply fears, US crude demand is strong as refiners finally begin gearing up for the summer driving season. A late cold snap in March prolonged strong demand for heating oil. The aversion to flying induced by war and the SARS virus could create even higher gasoline demand in this year's driving season. US crude inventories remain well below the norm, rising 3.2 per cent to 286.2 million barrels in the week ending 18 April - 12.7 per cent lower than a year earlier.

The Iraqi question remains at the forefront of traders' minds, with legal rather than physical obstacles to a resumption of exports to the fore. Confusion over who would represent Baghdad at the OPEC meeting highlighted the problem.

Despite the presence of some 8 million barrels of Iraqi oil in storage at the Ceyhan export terminal and an improving security environment, no liftings have been made since the end of Saddam Hussein's rule. 'People are absolutely terrified that if the person they buy the oil from doesn't actually own the oil, when an authority is established they could be liable for the value of the oil they thought they had already bought,' says a London-based international lawyer. 'We are having to advise clients that it is just too risky to buy Iraqi oil at the moment because nobody knows the legal position' (see Oil & Gas Special Report, page 27).

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