Oil producers heaved a sigh of relief on 11 March as the OPEC basket price peaked at $22.44 a barrel, after nearly six months of languishing below the preferred OPEC band of $22-28. OPEC welcomed the rise but cautioned producers against violating their output quotas and warned that the hike was based largely on concerns about Iraq, rather than reflecting actual market conditions.
The increased likelihood of a US military strike on Iraq is set to levy a $1-2-a-barrel premium on the oil price while tension persists. As US vice-president Dick Cheney visits the region to firm up support for strikes, the US looks more serious about toppling Saddam Hussein than at any point since the end of the 1990/91 Gulf war. However, it will be several months at least before any action can realistically begin, leaving open the prospect of a tense and unstable market.
Prices have been pushed up throughout the first quarter by the production cut of 1.5 million barrels a day (b/d) undertaken since 1 January by OPEC in conjunction with a cut of nearly 500,000 b/d by non-OPEC producers. Indications are that compliance to the cuts was strong from both parties in January, and the impact is now being felt on oil reserves in the West. However, some figures released in early March suggest that OPEC in February produced a further 180,000 b/d.
Although OPEC and a number of non-OPEC producers are likely to keep output steady for the duration of the second quarter, Russia looks set to open its oil taps once again. It agreed in December to cut 150,000 b/d from its projected January exports, but finds it hard to enforce decisions due to the deregulated nature of its oil sector.
The Paris-based International Energy Agency said on 12 March that the poor demand growth of 2001 was set to be repeated in 2002. 'Upward revisions to US economic data may fuel heightened optimism about the health and prospects of the global economy, but the implications for oil demand are not so bullish,' it said. It forecasts demand to grow this year by just 420,000 b/d after demand growth in 2000 of only 90,000 b/d.