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Oil Prices Plunge as Key Iraq Oil Fields Secured
Friday, March 21, 2003
Oil prices resumed their spectacular week-long fall on Friday as U.S. and British forces captured key Iraqi oilfields and ports intact, calming market fears of widespread destruction by Iraqi troops.
A big wave of extra OPEC oil arriving in the West, replacing supply lost from war-torn Iraq, also helped ease the threat of shortages.
The value of oil has dropped by a quarter in a week, having peaked at $35-$40 last month.
U.S. crude plumbed fresh lows, down $1.22 cents to $26.90. Benchmark Brent crude oil futures also fell 90 cents to $24.60 per barrel by afternoon in London, having touched a four-month low of $24.50.
"The capture of key oil facilities intact is adding to bearish sentiment," said Tony Machacek, a broker at Prudential-Bache International.
British troops secured a position on Iraq's Faw peninsula on the Gulf, which is a strategic oil export route controlling two key major ports.
British Defense Chief Sir Michael Boyce said all key components of the sourthern Iraqi oilfields, which pump half the country's output, had been safely secured.
Prices swung wildly during Thursday on reports, denied by Baghdad, that three or four oil wells were on fire in the south of the country.
Only seven oil wellheads had been torched in the south, less than the 30 previously reported, although oil-filled trenches were also ablaze, he said.
The oilfield fires are a long-term worry for oil markets, but have no immediate impact on supply because Iraq's Gulf exports stopped on Monday and this has already been factored into prices, said Leo Drollas of London's Center for Global Energy Studies.
"Whether Iraqi oil stays in the ground or is burned above ground, it still doesn't get to the market," he said.
Iraq ranked as the world's seventh largest oil exporter before the war.
OPEC exporters, especially Saudi Arabia, have hiked output over the past few months, first to cover a strike in Venezuela and then to cool a price spike fueled by war fears.
Imports of oil in the United States are rising despite the cutoff in Iraqi supplies.
"It is the weight of oil, rather than the force of bombs, which is pushing markets lower," said Leo Drollas of London's Center for Global Energy Studies. "OPEC is now producing more oil than has been lost."
U.S. Energy Secretary Spencer Abraham said OPEC output was in line with its total production levels last November despite shortfalls from Iraq, Venezuela and Nigeria.
Western oil companies operating in Nigeria have slashed production and are expected to close the key Ecravos export terminal this weekend because of political unrest ahead of elections next month.
Brokers said investors were selling positions built up on futures markets when U.S. crude rallied to a 12-year peak close to $40 in late February on war fears.
"The market has now moved from a war premium to a victory discount," said independent oil analyst Simon Games-Thomas.
Price hawks in OPEC are already concerned about the slump, which is good news for world economic growth but hits revenue for the cartel of mostly Middle Eastern countries.
The dive has also revealed deep splits in the 11-member Organization of the Petroleum Exporting Countries.
OPEC Secretary-General Alvaro Silva said on Thursday that members have been authorized to use their spare capacity if necessary to make up a shortfall in Iraq supply.
But Iranian Oil Ministry Adviser Hossein Kazempour Ardebili said any output hike would be a "violation" since no decision had been taken to raise OPEC quota limits.
He said extra oil would be a "green light" to the United States to launch an attack on one of OPEC's founding members.
Saudi Arabia, the world's top exporter and key U.S. ally, is pumping more than a million bpd above its quota of eight million bpd, according independent estimates.
So far Gulf states near Iraq have reported no disruptions to oil production, nor any disturbances to tanker movements in the Gulf, which is the artery for 40 percent of world oil exports.
Iraq's neighbor Kuwait said it would cut throughput at its refineries briefly as a precautionary move after a near miss by two Iraqi missiles on Thursday.
Reuters contributed to this report