LONDON, April 15 - Oil prices weakened on Tuesday while traders weighed a possible reduction in OPEC production against an eventual resumption of Iraqi crude flows as the U.S.-led war in Iraq drew to a close. The Organisation of the Petroleum Exporting Countries (OPEC) confirmed it would hold an emergency meeting on April 24 in Vienna, Austria. The cartel is expected to debate possible production cuts following a plunge in prices from a late February peak of almost $40 a barrel for U.S. crude. U.S. light crude on Tuesday was down 13 cents at $28.50 a barrel, while London's Brent crude lost 23 cents to $24.76 a barrel.
Consumer nations remain concerned about low oil stocks, but traders and analysts believe OPEC, fearing a potential price collapse in the second quarter as demand tails off after winter, will act to curb supplies. At its April 24 gathering, OPEC is expected at least to erase excess supplies of some two million barrels per day (bpd) being pumped above formal output limits of 24.5 million bpd and it could also consider reducing those quota limits. The winding down of the war in Iraq with its oil infrastructure largely intact has meanwhile raised speculation that crude exports from the Gulf producer could resume in the foreseeable future. But administrative and legal issues might delay the arrival of physical barrels to the market. "The war to oust Saddam Hussein's regime has become a somewhat less-than-critical matter to oil market interests, owing to the lack of devastation and securing of Iraq's oil infrastructure," wrote Merrill Lynch's Mike Rothman in a daily note.
"With respect to the resumption of exports, it appears that we may be at least two months away from oil sales commencing owing largely to administrative and legal issues as opposed to physical limitations, in our estimation." Iraq exported about 1.7 million bpd of its daily output of roughly 2.5 million barrels before the war to oust Saddam.
WATCHDOG WARNING
The International Energy Agency (IEA), which acts as a watchdog for 26 industrialised nations on energy issues, warned producers last week that any cut to supplies would be imprudent for now despite a backlog of OPEC oil on the water waiting to hit consumer shores. Crude inventories in the United States, the world's biggest oil user, this year have been running at a big deficit to 2002 levels and close to 270 million barrels, which the government considers the minimum needed to keep the nation's refineries operating smoothly. Stocks of gasoline are also lower than at the same time in 2002, prompting some analysts to express fear that if refiners do not start to replenish tanks soon, there could be a supply crunch when motor fuel is in peak demand in the summer. The U.S. government's Energy Information Administration (EIA) will release its weekly report on the health of U.S. fuel stocks on Wednesday. Traders closely monitor EIA data for a snapshot of overall demand for oil.
Six analysts polled by predicted crude stocks would have grown by 2.5 million barrels in the week to April 11, with gasoline inventories rising 1.55 million barrels.//