Oil prices steady as market awaits OPEC moves

30 May 2003
Oil prices steadied in the final week of May, with the anticipation of June output cuts, the continuing impact of the Riyadh and Casablanca terrorist attacks and low stocks balanced by signs that Iraqi exports are imminent. Brent was trading at $26.47 a barrel on 28 May, down from $27.09 a week earlier.

Newly-appointed head of the Iraqi State Oil Marketing Organisation (SOMO), Mohammed al-Jibouri, said on 27 May that exports should resume by mid-June, their legal framework having been established by the 22 May UN resolution lifting sanctions. 'There will be some minor changes in our crude oil contract,' he said. 'We are working on that and hopefully within two-three weeks we will be able to export.' Some 8 million barrels of crude have been in storage at the Ceyhan export terminal since the beginning of the war. Al-Jibouri said that Iraqi output had risen to 800,000 barrels a day (b/d), of which about 500,000 b/d was required for domestic purposes.

Concerns that the restoration of Iraqi output could prompt a price collapse were a key factor in OPEC's 24 April decision to cut output by 2 million b/d in June and Saudi Arabia is preparing to make good on that promise. Riyadh has indicated that output will be cut to about 8.3 million b/d. Western firms have been informed that sales will be cut by 20 per cent from 1 June and Asian buyers will have supplies reduced by 6-7 per cent. However, this may be insufficient to support prices when Iraqi exports resume. 'Most OPEC countries were below or virtually level with the new higher quotas allotted in April, so are actually able to increase output from June,' says Geoff Pyne of Sempra Energy Trading. 'Algeria is unlikely to impose its cut. Saudi Arabia and Kuwait will reduce by a combined 1.4 million b/d, but the net effect will be less than 1 million b/d.'

OPEC meets again in Doha on 11 June and organisation officials have been hinting at further cuts. OPEC President and Qatari Minister of Energy & Industry, Abdullah bin Hamad al-Attiya is attempting to enlist non-OPEC producers' support in dealing with the impact of Iraq, and has invited seven non-OPEC members - Syria, Oman, Egypt, Russia, Norway, Mexico and Angola - to attend the June gathering.

Substantial price falls in the coming months remain unlikely, however, as the factors of low US stocks and high seasonal demand keep the market tight. The late May Memorial Day weekend heralded the start of the American driving season and the need for high gasoline runs will prevent a significant stock build.

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