Iraq, OPEC and 11 September drive up the price

13 September 2002

Oil prices were pushed up throughout early September as the market reacted bullishly to fears of a US military campaign against Iraq and the increasingly clear assertions that OPEC will not increase its capacity later in the month. The first anniversary of 11 September contributed to the edginess in the market as reports began to surface of terrorist threats to Gulf oil shipments.

The upcoming OPEC meeting in Osaka on 19 September will establish OPEC quotas for the last quarter of the year, when demand traditionally rises to accommodate increased consumption of heating fuel during the northern hemisphere winter. So far, the signs point to a rollover of the existing quota of 21.7 million barrels a day (b/d). Qatar's Energy & Industry Minister Abdulla bin Hamad al-Attiya said on 10 September that no increase was necessary. 'There is no supply shortage,' he said. 'On the contrary, the market is saturated with more than enough oil supplies.'

Kuwait is also on record opposing an increase. 'There is no need for an increase,' said acting Oil Minister Sheikh Ahmad al-Sabah on 9 September. 'Kuwait still believes that the current output is appropriate.'

Saudi Arabia and Iran, the organisation's two largest producers, have yet to make public their views on OPEC quotas for the next three months. In view of actual OPEC production, there may be an argument for raising the official output ceiling. A Platts survey released on 5 September said that OPEC production was some 2 million b/d above the limit, demonstrating a steady increase in output throughout the summer.

However, some of the surplus is being mopped up by traders now unwilling to buy Iraqi oil. The retroactive pricing regime brought about a sharp drop in Iraqi sales earlier this year, a decline that was made more acute by the subsequent fears of US military action. Hard talk from US President George Bush on taking action against Baghdad has kept the oil price at more than $25 a barrel in September.

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