West Texas Intermediate (WTI), the US benchmark crude, traded at a high of $30.32 for September sales on 20 August, the highest level since January 2001. But as bearish stocks figures were released by the US government Energy Information Administration (EIA), prices retreated on 21 August, with benchmark Brent spot crude valued at $27.32.
EIA’s figures showed a slight increase in US reserves, following a hefty fall the previous week. Its weekly stocks bulletin, released on 21 August, said that in the week ending 16 August, crude stocks grew by 2.8 million barrels and gasoline stocks by 700,000 barrels. However, stocks of distillates, mainly used as a heating fuel, fell by 600,000 barrels.
The figures highlight the unpredictable and erratic nature of US energy demand this year. Recent apparent growing demand for both gasoline and industrial fuel products has contributed to the rising oil price over recent weeks. However, indications that OPEC will roll over its production quotas have also contributed to the price rises. Kuwait’s Information Minister and Acting Oil Minister Sheikh Ahmad al-Fahad al-Sabah said in an interview on 20 August that he did not expect an increase in OPEC production unless the price of OPEC’s basket of crudes exceeded $28 a barrel. On 20 August it stood at $26.82 a barrel. However, with recent figures published by the Energy Intelligence Group indicating OPEC overproduction of about 1.7 million barrels a day (b/d), there are clear signs the organisation is ready to boost its official output.
Iraq exports were reported to have fallen still further in mid August, having declined steadily throughout the year. Exports to the US have been in particular jeopardy, as US firms decided against lifting a crude perceived as high risk. A UN Security Council committee was told on 20 August that the country’s exports to the US had fallen from about 1 million b/d five months ago to between 100,000-200,000 b/d, leading to a fall of about $20 million a day in revenues for the UN oil-for-food programme.
Widespread fears of US military action, prompted by sabre rattling from prominent figures in the Bush administration, have been the major reason for traders to prefer other crudes. But they have also been put off by the illegal surcharges imposed by Baghdad on its crude sales and the retroactive pricing mechanism imposed by the UN last year to deal with it. In a bid to solve the problem, Russia in mid August attempted to broker a deal between Iraq and the UN, in which Iraq would promise to lift its surcharges and oil sales would return to the original pricing mechanism. However, both the US and UK rejected the deal, citing a lack of trust in Baghdad and demanding to see evidence first that the surcharges had indeed been dropped.
Moscow has been involved in other aspects of the Iraqi oil industry of late, with a $40,000 million economic co-operation deal expected to be signed by the end of August, with the bulk expected to be in oil deals. However, similar deals have been made before to no actual effect.