VIENNA, March 9: Opec meets this week seeking a compromise that guarantees world oil supplies in the event of war, without appearing to underwrite military action against Iraq.
The Western-friendly core of the Organisation of the Petroleum Exporting Countries, led by Saudi Arabia, hopes to show at Tuesday’s meeting it can safely be counted on as the energy reserve for the industrialised world.
With crude nearing 1990 Gulf crisis highs of $41 a barrel, Opec wants to prevent a price shock damaging to economic growth in the industrialised countries that buy its oil.
“It’s in Saudi self-interest to control prices,” said Gary Ross, head of New York consultancy PIRA Energy. “They have all the spare capacity and 28 percent of the world’s reserves. They know high prices kill economic growth and demand for their oil,”
Pundits say a US assault on Baghdad, possibly just days away, might easily send prices rocketing from $38 already for US oil, if only for a short period.
“In a market like this, a price spike over $40 a barrel is to be expected, but the question is whether it lasts an hour, or a week, and that depends on the progress of the war,” said Washington consultancy Petroleum Finance Corp.
Saudi, home to the world’s only significant spare oil capacity, is leading an Opec charge back to near-record production volumes after years of self-imposed limits. Riyadh so far this year has jacked up supply by over a million barrels a day to more than nine million to calm war fears and compensate for shortages caused by a long-running Venezuelan strike.
That leaves Opec with little more left untapped than the equivalent of the 1.7 million bpd exported by Iraq.
Importing nations, in particular the United States where commercial inventories are at rock-bottom, want Saudi to squeeze out all it can. Saudi has made clear it is willing to do so, with or without formal Opec permission.
“We can do it and, if need be, we will do it,” a senior delegate told Reuters on Sunday.
GROUNDWORK: Riyadh has laid the groundwork for a bid to convince consumer countries that it can compensate for any war disruption without the need for importers to draw on their massive strategic reserves.
Saudi Oil Minister Ali al-Naimi held talks last week with IEA Executive Director Claude Mandil and will meet with US Energy Secretary Spencer Abraham in Vienna.
Producers fear a repeat of January 1991, when an emergency release by the International Energy Agency (IEA) to coincide with the start of the allied bombing of Baghdad knocked $10 off the price of a barrel in a day.
Oil shot over $40 after Iraq’s August 1990 invasion of Kuwait but the consequent slump below $20 saw cheap crude for most of the rest of the decade.
Signs for Opec are encouraging. Abraham repeatedly has said it will take a severe disruption for a drawdown from Washington’s Strategic Petroleum Reserve. He declines to say whether an Iraqi outage would meet his definition of “severe.”—Reuters