The passage of a UN Security Council resolution on 8 November to force Baghdad to accept weapons inspectors heightened market perceptions that a war is imminent. Iraqi oil production in October was estimated at 2.4 million barrels a day (b/d), some 400,000 b/d less than capacity.

OPEC has consistently said it will fill any gap in oil supply caused by a war. In October, the organisation had spare capacity of 5.7 million b/d, easily enough to cover for Iraq. Saudi Arabia alone had spare capacity of 3 million b/d.

But despite new capacity additions, the level of excess capacity has been steadily diminishing this year as OPEC members have relaxed their compliance to the organisation’s output targets. Production in October was 24.7 million b/d, some 3 million b/d above the ceiling. While output has steadily grown over a nine-month period, the increase from September to October of 1 million b/d caught the market by surprise.

OPEC members have defended their overproduction, claiming the market can support the extra oil and that it will maintain price stability at a time of political tension. Some have claimed it will also help prevent a deterioration in the world economic climate, leading to an increase in oil demand growth.

Demand, which was very low last winter, is expected to improve on a colder northern hemisphere winter. The American Petroleum Institute on 13 November reported a decline in crude oil stocks in the week ending 9 November, indicating enough demand to account for the increase in OPEC production. However, the stocks draw was at least partly due to an earthquake in Alaska that disrupted supplies.