EXPERTS: OPEC PUMPING FURIOUSLY
Saudi oil output may ease oil prices
Published: Saturday, March 1, 2003 at 6:01 a.m.
Last Modified: Friday, February 28, 2003 at 10:43 p.m.
LONDON - A recent surge in Saudi Arabian oil production should help cool sizzling prices when crude shipments from the Persian Gulf reach U.S. ports within a month, industry analysts said Friday.
AT A GLANCE: Jitters over war
Prices eased a day after spiking to a 12-year high in the United States on concerns about tight supplies. Some analysts said OPEC member countries were pumping furiously and argued that the current market turmoil would ease once these fresh barrels hit the market.
"A lot of the crude produced in January has not yet arrived. The situation may change drastically," said a senior source at the Organization of Petroleum Exporting Countries.
Fears of a war with Iraq are partly to blame for the latest run-up in prices. April contracts of U.S. light, sweet crude climbed as much as $2 on Thursday to peak at $39.99 a barrel in New York, the highest level since October 1990, when Iraq occupied Kuwait. On Friday, the April contract fell 60 cents to settle at $36.60 in New York.
Fears that a war might create supply shortages have inflated prices by at least $5 a barrel, said the OPEC source, speaking on condition of anonymity from the group's headquarters in Vienna, Austria.
However, analysts said OPEC could probably make up the 2 million barrels a day that Iraq would be unable to export if fighting broke out in the Gulf. OPEC supplies about a third of the world's oil.
The cartel's most powerful member, Saudi Arabia, says it can produce up to 10.5 million barrels a day. That is substantially higher than the 8.5 million barrels a day that the International Energy Agency, a watchdog for oil-importing countries, said the country was producing in January.
"I think they're well above 10 million barrels, and pumping," said Peter Gignoux, managing director of the petroleum desk at Salomon Smith Barney. Much of this additional crude is already on its way to the U.S. East Coast.
"There is a considerable amount of oil en route from Saudi Arabia," agreed Lawrence Eagles, head of commodity research for London brokerage GNI Ltd. Although it was unclear how many barrels were actually in transit, Eagles said the market would be "relatively balanced" if this fresh Saudi oil was counted as part of the global supply.
The United Arab Emirates and other OPEC members that aren't already producing at full capacity could boost the cartel's output further to help make up for any missing Iraqi barrels. "Altogether they can cover it - barely," the OPEC source said.
The recent price spike was most pronounced in the United States, the world's biggest importer of crude. While Iraq has been a factor in this surge, analysts said cold weather and the fallout from a strike in Venezuela's oil industry have played a bigger role.
"We've lived without Iraqi oil before. This doesn't bother me," Gignoux said.
Venezuela is steadily ramping up its production in the wake of a crippling strike. It has boosted exports from 700,000 barrels a day a few weeks ago to 1.4 million barrels today, and further increases are expected, Eagles said.
However, U.S. importers were slow to seek alternative sources of crude when the strike first disrupted Venezuelan exports in December. This slow response, together with the longer time it takes crude to reach North America from Saudi Arabia, has helped cause a temporary squeeze in the U.S. market, analysts said.
On top of the surge in crude prices, heating oil soared to historic highs this week as snow buried large parts of the United States.
"In my world of oil," Gignoux said, "I've seen chaos this week."
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