SINGAPORE, Sept 25 - Oil prices paused on Thursday after a run up of more than $1 as traders reassessed OPEC's shock output cut that will take effect just as winter sets in on the Northern Hemisphere. Analysts said U.S. light crude was unlikely to move much higher from current levels at $28.24 a barrel, unchanged from Wednesday's settlement when it surged $1.11, or more than four percent. "I think prices will hold in a $27 to $29 range for the time being. There are risks, Venezuela and Iraqi production, but I think $30 would be difficult," said David Thurtell, commodities strategist at Commonwealth Bank of Australia.
The Organisation of the Petroleum Exporting Countries agreed to reduce the production ceiling for 10 members by 900,000 barrels per day to 24.5 million bpd, effective November 1, citing rising stocks, falling prices and the return of Iraqi crude to the world market. OPEC's agreement revived prices, which had dropped more than 15 percent from the beginning of September to hit a four-month low last Friday at $26.65 a barrel for U.S. crude as speculators pulled out and concerns abated over a possible summer gasoline supply crunch in the United States. "We don't want the market to collapse on our heads," Rilwanu Lukman, Nigerian Presidential Adviser on Energy, said after OPEC sealed the deal. Even with Wednesday's price spike, crude remains well below the $32 level struck at the end of August.
IRAQ QUESTION
One of OPEC's biggest concerns has been the stuttering recovery of Iraq's oil industry, which was rundown after more than a decade of international sanctions under the rule of Saddam Hussein and suffered damage and sabotage during and after the U.S.-led war in March. Iraq has been excluded from OPEC's production quota system since the U.N. sanctions on Baghdad after its 1990 invasion of Kuwait. It had been exporting crude, however, under the U.N. administered oil-for-food programme. New Iraqi Oil Minister Ibrahim Bahr al-Uloum, attending Baghdad's first OPEC meeting since the toppling of Saddam, said Iraq aimed to match its pre-war output by early 2004 from a current production at some two-thirds of that level at 1.8 million bpd.
"Once the fact sinks in that OPEC is simply matching Iraq's re-emergence step-by-step, much of the guesswork that has gone into ascertaining OPEC thinking should be removed," said a report by security think-tank Stratfor. "That should herald a slightly less volatile market -- a welcome development following the last two years of terrorist attacks, wars, supply disruptions and general market chaos," Stratfor said. Kuwait said after OPEC's agreement that the cartel, which controls 50 percent of global crude exports, had raised production to take into account the Iraqi outage. Before the war, Iraq was the world's seventh biggest exporter. "Now they are back to normal we are going back to normal," Oil Minister Sheikh Ahmad al-Fahd al-Sabah said. The group has scheduled another meeting on December 4 to review production policy and Iraq's return. Both Venezuela and Iran said OPEC might cut again.
"We believe that we have about 2.5 million barrels per day of oversupply in the first quarter of 2004 and it's better to start before to prevent a bad situation," said Iranian Oil Minister Bijan Zanganeh. The head of the west's energy watchdog warned OPEC's latest supply restraints could damage the momentum of a recovery in the global economy. "Given the continued weakness of the world economy, OPEC's strategy to maintain prices at persistently high levels cannot contribute to a sustained recovery and a return to global economic growth," said Claude Mandil, executive director of the Paris-based International Energy Agency.//