US gasoline stocks, which had been expected to fall in the week ending 12 July, in fact climbed by 1.3 million barrels, a figure that was amplified by a still sharper growth in distillate stocks of 4.3 million barrels. Despite the onset of the US driving season and a fall in stocks the previous week, the figures indicate that demand continues to be poor as the US economy struggles to recover from the dip that began last year. Benchmark Brent crude was valued at $26.18 a barrel on 17 July, a healthy increase from $25.55 the previous week.

Iraq, where exports have fallen to just 773,000 barrels a day (b/d), almost half its January level, is taking steps to make its oil more attractive to traders. Reports suggest the country has further decreased the covert surcharge it adds to the export price to $0.10 a barrel, indicating a willingness to sacrifice illicit extra revenue to increase the level of official revenue falling under the oil-for-food programme. A UN regime of retroactive pricing was introduced last year to prevent the surcharges, leading to the dramatic fall in exports. However, a UK proposal to modify the regime has been rejected by Russia, which says the changes would discriminate against Russian energy companies, the main lifters of Iraqi crude.

For now, the fall in Iraqi production has been mopped up by increased output among other OPEC members and non-OPEC producers. The New York-based Energy Intelligence Group estimates that OPEC 10 production rose by 107,000 b/d in June, while non-OPEC production rose by 102,000 b/d. However, the Paris-based International Energy Agency (IEA) says that OPEC 10 output effectively fell by 140,000 b/d, because it says that one of the Venezuelan crudes should be reclassified as non-conventional. Venezuela has been one of the most ill-disciplined OPEC members during the summer as President Hugo Chavez struggles to increase revenues to prevent a repeat of the abortive April coup.

Forecasts for demand and supply next year continue to be mixed. The IEA says it expects non-OPEC production to increase by about 700,000 b/d in 2003, compared with OPEC growth of just 220,000 b/d. OPEC's efforts to shore up its preferred price band of $22-28 a barrel have left it unable to defend market share in the face of growing production elsewhere, especially in Russia, West Africa, Mexico and Canada.