Oil higher on Iraq war risk, OPEC efforts: Report
Wednesday, November 20 2002 - 02:32 AM WIB
Dealers remain jittery one day after U.N. weapons inspectors returned to Baghdad -- backed by the threat of U.S. military action -- and following a weekend of thwarted attacks by Muslim militants in Kuwait and Britain.
By midday, London benchmark Brent futures were 31 cents higher at a two-week high of $24.59 a barrel, putting the week's gains at around 5.5 percent. U.S. light crude climbed 21 cents to $26.92 a barrel, putting week gains at $1.38.
Many speculators covered their positions this week after selling oil down to an eight-month low last week as Iraq relented to U.N. inspectors and global inventories swelled. Prices had fallen about a fifth from above $30 in early October.
This week's change in sentiment was partly fostered by signs the Organization of the Petroleum Exporting Countries was getting serious about overproduction, which in October was estimated at more than three million barrels per day (bpd) above the formal production ceiling of 21.7 million bpd.
"Oil was...supported by the admission by OPEC that overproduction is an issue and that it is taking steps to reduce it," said Lawrence Eagles of GNI Research.
On Tuesday a Gulf source echoed comments the day before by OPEC President Rilwanu Lukman that the whole cartel was attempting to rein in production -- an apparent reversal of previous comments by officials that the excess barrels were being absorbed by the world market.
OPEC is due to meet from December 12 in Vienna.
"The movement toward reduction has already started by OPEC countries, including Saudi Arabai," the source told Reuters, adding that members were in contact about curbing oversupply.
"This reduction is likely to intensify in the coming weeks, especially in light of a possible warm winter and the resulting lower-than-anticipated winter demand," the Gulf source added.
War risk remains
Analysts said the market was also pricing in the possibility of war in the Middle East, which pumps one-quarter of world crude supplies, if Iraq failed to fully meet terms of a U.N. resolution on disarming the country.
"There are concerns whether Iraq will comply completely with inspections. Fundamentally the oil price is probably $22 to $24 a barrel, so there's still a war premium for some sort of disruption to supplies," said Paul Ashby at ABN Amro in Sydney.
"But the premium is not as big as it was. Now it's probably $2 to $3 a barrel, whereas before it was $6," said Ashby.
U.N. chief arms inspector Hans Blix and a team of about 30 experts were due to start their first full day of work in Iraq on Tuesday after a four-year suspension of inspections.
The team will prepare the way for searches later this month for biological, chemical and nuclear weapons, which the United States claims have been stockpiled by Iraq.
President Bush, urging regime change in Iraq, has vowed to take military action if Iraq fails to disarm.
Iraq is due to submit a full account of all banned weapons programs on December 8 and inspectors have a deadline to give their first report to the U.N. Security Council by January 27.
On Monday, U.S. and British warplanes bombed an air defense system in northern Iraq in response to Iraqi fire. Defense Secretary Donald Rumsfeld said Baghdad was already in breach of the U.N. resolution by firing on aircraft patrolling "no-fly zones" in the south and north of the country.
Iraq supplies around four percent of global oil demand under the U.N.'s oil-for-food humanitarian aid program, which is expected to be extended for another six-month phase when it comes up for renewal at the end of this week.
An Iraqi industry source said exports will flow smoothly into the next phase when the current one ends on November 25.
A new round of violence between Israel and the Palestinians and fears of attacks by Muslim militants against Western interests were also underpinning oil, brokers said.
Britain and Kuwait said at the weekend they had foiled attacks, while several international schools in Indonesia remained closed for a third day on Tuesday on security concerns. (*)