LONDON, 14 August 2003 — Oil prices sank on world markets yesterday on news of a surprise rise in US crude oil stock levels that helped to calm jitters about possible supply shortfalls. The price of benchmark Brent North Sea crude oil for September delivery lost 37 cents to $29.50 per barrel in late trading.
New York’s reference light sweet crude September contract fell 62 cents to 31.30 dollars per barrel in early deals. Prices slid as traders reacted to news of an increase in US crude inventories last week.
The US Department of Energy (DoE) estimated the rise at 200,000 barrels to 280.4 million from the previous week, while the private American Petroleum Institute (API) put it at an even bigger 3.2 million barrels to 281.3 million. The rise confounded expectations of a fall in crude stocks, though gasoline inventories dropped in line with analyst forecasts, by 3.7 million barrels to 198.1 million according to the DoE.
“The market is taking its direction from a surprisingly large build in crude and especially focusing on the API number which shows a very substantial build,” said Commerzbank analyst David Thomas.
Some analysts said that the chances of further heavy price falls seemed slim given supply worries which have kept the OPEC oil organization’s basket price above the top of its target range of $22-28 per barrel for eight days in a row. “The market is still concerned about the situation in Iraq, you still have got strong OPEC compliance with quotas in July, and Saudi Arabia saying they will keep the September deliveries quite tight, so I am not sure that we will see a heavy sell-off in crude,” said Thomas.
Efforts to get the ramshackle Iraqi oil industry up and running again have been hindered by apparent acts of sabotage and security concerns. An Iraqi oil pipeline was damaged in a blast yesterday near the town of Hadithah, 250 kilometers northwest of Baghdad, witnesses said.
In Turkey, an Energy Ministry official said Iraq began pumping oil from a pipeline running from its northern Kirkuk field to the Turkish Mediterranean port of Ceyhan yesterday. The pipeline was expected to have a capacity of between 200,000 and 300,000 barrels of oil per day, according to an official of the US-led coalition in Iraq.
The official OPEC target price hovered around $29 per barrel Tuesday, exceeding the ceiling for the eighth day in a row. And no let-up in prices was in sight. If they remain that high for another 12 days, that would theoretically trigger an OPEC price correction mechanism. Established in March 2000, the mechanism works in two directions to adjust production to bring the basket price to within the target range.