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Tuesday, June 5, 2001
OPEC tries to calm oil supply jitters
Iraq's cutback causes markets brief concern
By Bruce Stanley
Associated Press
VIENNA, Austria - OPEC oil ministers tried to reassure nervous energy markets Monday that the producers' cartel would make up for any shortage of crude after Iraq halted most of its oil exports.
   Crude prices shot higher initially on the Iraqi announcement, but then lost those gains as it became apparent that OPEC members will not allow a shortfall to occur.
   "We're going to make sure that demand is met. I'm not worried," OPEC president Chakib Khelil said in the Vienna, where the group's representatives are to meet today to set future targets for output. Khelil gave no details of how the Organization of Petroleum Exporting Countries planned to replace the missing Iraqi crude.
   Iraqi Deputy Oil Minister Taha Hmoud Mousa later dispelled some of the uncertainty about Iraq's intentions, telling reporters his government has suspended exports for only one month. The halt was made as a protest against the U.N. Security Council's decision to extend by one month instead of the usual six months the program under which Iraq can sell oil.
   Nevertheless, the Iraqi maneuverings initially sent July contracts of North Sea Brent crude up to a six-month high of $29.71 on the International Petroleum Exchange in London, before they fell back to $29.12, up 5 cents on the day.
   On the New York Mercantile Exchange, contracts of light sweet crude for July delivery peaked at $28.74 in early trading before slipping back to $28.34 in afternoon trading, up 41 cents.
   The move by Iraq cast an element of doubt into this week's meeting, during which OPEC officials are expected to decide to maintain oil production at current levels.
   Khelil reiterated that view, saying supplies were "good and sufficient" to meet global demand. OPEC has an official output target of 24.2 million barrels a day, and its members pump about two-fifths of the world's crude.
   OPEC is meeting as motorists in the United States are paying stiff prices for gasoline, with drivers in some parts of the country paying more than $2 a gallon. However, OPEC has argued that bottlenecks at U.S. refineries are the cause, not tightness in crude supplies.
   Even though Iraq removed some 2 million barrels a day from those supplies, the cartel hastened to allay fears of possible shortages and a spike in energy prices.
   "OPEC will manage the market, and I'm not concerned (about) any shortage," Iran's Oil Minister Bijan Namdar Zangeneh told reporters upon his arrival at a Vienna hotel. Iran is OPEC's second-largest producer, while Iraq ranks third.
   Analysts were also anticipating that the oil ministers would simply re-approve their current production volumes.
   OPEC decided in March to trim its official output by 4 percent in an effort to buoy prices.
   That cut followed an agreement in January to reduce output by 5 percent.
   Leo Drollas, chief economist of the Center for Global Energy Studies in London, said these combined cuts of 2.5 million barrels a day could lead to a shortage later this year of heating oil, a product that is refined from crude. But for the immediate future, he predicted that crude prices weren't likely to jump much higher
   Gasoline prices, which began leveling off late last month, have already peaked, he said, noting that U.S. refineries were operating at 96 percent of their capacity and that gasoline imports were flooding into the United States.

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