Nervous traders keep prices high

20 October 2003
Oil prices rose by close to $2 a barrel in the third week of October in spite of a lack of major market incidents. Analysts pointed to a general nervousness among traders about Iraq, US stocks and OPEC's plans, leading to sharp price changes at the faintest hint of supply disruption. Brent was trading at $31.2 a barrel on 15 October, compared with $29.4 a week earlier.

US crude stocks showed an unexpectedly strong build in data released on 15 October but the news failed to dampen prices, which have been close to the $30 mark ever since OPEC's September decision to cut output. Instead, traders focused on the heating oil data as the northern hemisphere winter approaches. Heating oil stocks were down 0.7 per cent to 54.2 million barrels, 7 per cent lower than at the corresponding point in 2002. Data for the following week was released late because of a US holiday but was forecast to show little improvement in the heating oil position.

OPEC managed to push up prices again, even before their planned 1 November output reduction. The group's latest monthly report, published in mid- October, showed that the OPEC 10 cut production by 300,000 barrels a day (b/d) in September. Riyadh was the chief engineer of the tightening, but UAE output also fell significantly. To make matters worse in the eyes of energy consumers, OPEC also signalled a lack of concern at price levels at and above its theoretical $28 ceiling. 'The current increase in prices is temporary and we will have to follow up the situation,' Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah told reporters on 14 October. Other ministers have made similar comments while, even more worryingly over the longer term, Caracas has mooted the idea of raising the target price band to $25-32.

Supply fears from Nigeria eased as unions called off a strike that had threatened to shut down oil facilities. However, the impact was balanced by a spate of car bombings highlighting Iraq's instability, including one in which newly-appointed Oil Minister Ibrahim Bahr al-Uloum narrowly escaped injury. Sabotage of the country's hydrocarbons infrastructure continued on 12 October, when a pipeline carrying oil from the northern Kirkuk fields to the Baiji refinery was set alight. Iraqi exports are estimated to have reached some 1.3 million b/d although output remains volatile.

Fears of wider disruption in the Middle East, sparked initially by Israel's bombing of a site in Syria in early October, were maintained by a statement from Damascus on 11 October warning that in future such attacks would attract retaliation. 'In case of repetition, Syria has the right to exercise its right of self-defence in all available ways,' said a Foreign Affairs Ministry spokesman.

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