LONDON, 24 May 2003 — World oil prices rose yesterday, maintaining a two-week-long rally, as dealers looked beyond war and peace in Iraq toward tight global supply data. Benchmark Brent crude oil gained 39 cents to $26.36 per barrel, while US futures rose 40 cents to $29.25. “The postwar dynamic is coming out of the market, and the market is returning to normality,” said Paul Horsnell of investment bank J.P. Morgan. “But that normality is tighter than some expected.”
Prices slumped by about 20 percent in the weeks around the war on Iraq as traders’ worst fears of widespread damage to Middle Eastern oil installations were not realized. But they have since recovered on data showing global oil inventories staying stubbornly low, despite extra supply from OPEC, at a time of year when companies normally rebuild after the Northern Hemisphere winter.
Horsnell said oil stocks in the United States, which consumes 20 million barrels per day, a quarter of world oil supply, were 98 million barrels below the five-year average. Following the lifting of sanctions on Iraq by the United Nations on Thursday, Iraqi officials said they were hoping to restart exports as soon as possible.
Traders expect tankers to start exporting Iraqi oil from storage tanks on the Turkish Mediterranean coast within weeks. This presents a tricky problem for the OPEC, which meets in Qatar on June 11 to decide output policy for the third quarter. The Organization of the Petroleum Exporting Countries has already agreed to trim supplies from June 1, and signaled that it may have to agree deeper cuts in Qatar if Iraqi exports resume by then.
“In the face of tight supplies, an imminent OPEC production cut and no clear date for the return of Iraqi oil to the market, prices should continue to rise,” said FIMAT International Banque in a daily note. OPEC’s reference oil price stood at $26.53 per barrel on Thursday, in the upper end of the cartel’s $22-$28 target range.
Saudi Oil Minister Ali Al-Naimi said on Thursday that “everybody is happy” with current prices, and ministers would consider in Qatar whether further action was needed to keep prices in the band.
Russia, which opposed a US-led campaign to topple Iraqi leader Saddam Hussein, may be better placed to hold on to its stake in Iraqi oil after the UN Security Council finally voted to lift sanctions on Baghdad. “I think Russia has got a reasonable basis on which to defend its interests,” said Christopher Granville, a strategist in London with Moscow-based investment house United Financial Group.
The biggest Russian prize is a $3.7 billion contract secured by one of the country’s biggest oil companies, LUKOIL, to develop the prized West Qurna oilfield. The former Iraqi regime cancelled that contract in 2002 on the grounds of non-performance by LUKOIL, although the company says it will sue any new contender. Anti-war states Russia, France and Germany threw their weight behind a UN Council resolution on Thursday allowing the United States and Britain to use Iraq’s immense oil reserves to fund the nation’s reconstruction.
Russia was won over when Washington agreed to an independent although limited United Nations role and the possibility of UN inspectors returning to Iraq. United Nations envoys said that long-term oil contracts are held in abeyance and could not be negotiated until a permanent and internally recognized Iraqi government has been installed. “To the extent it (the resolution) reestablishes United Nations authority it could be said to be good. With the United Nations back in the game Russia’s position is improved,” said Jonathan Stern, an energy analyst at the Royal Institute of International Affairs in London.