Analysts query impact of Iraq embargo

28 October 1994

Oil market analysts have started to reassess their forecasts for the next few months on the assumption that Iraqi oil exports will not be resumed. Projections on likely prices next year vary and there are even suggestions that the current OPEC production ceiling may have to be lowered.

The prospect of a resumption of Iraqi oil exports by mid-1995 is now considered to be remote, following the latest crisis over Iraqi threats to the sovereignty of Kuwait (MEED, 21:10:94, page 22). 'Looked at from the outside, the latest Iraqi move is entirely counter-productive, for the threat of a renewed military action will never persuade the UN Security Council to alter its position and end sanctions,' the London-based Centre for Global Energy Studies (CGES) says in its latest monthly report. CGES says that the market is showing signs of uncertainty at present but expects to see prices rising if Iraqi oil exports are delayed. 'Much higher prices can be expected, especially if OPEC is slow to raise its output in the face of rising demand,' CGES says. The report goes on to project a 1995 annual average price of $19.80 a barrel for the OPEC basket if Iraqi exports are delayed and OPEC sticks to its current production ceiling.

A contrary analysis, predicting softer prices in the first quarter of 1995, has come from the Paris-based DRI News Service in its new monthly oil market outlook. DRI predicts that average OPEC crude prices will rise by around $1.00 a barrel over the next six weeks and peak at $16.80 a barrel in November. DRI forecasts that prices will fall to $14.90 a barrel by March 1995.

In a bearish reading of the market, the New York-based Petroleum Intelligence Weekly (PIW) says that OPEC may actually have to cut production over the next six months before demand starts to grow more strongly in the second half of 1995.

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