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Oil slides on glut fears as Iraq oil wells burn
Tom Ashby in London |
March 21, 2003 18:22 IST
Oil prices resumed a week-long plunge on Friday, bringing the seven day loss to more than 25 per cent, as traders woke up to a glut of OPEC oil arriving in the West as exports dried up from war-torn Iraq.
Britain said up to 30 oil wells in southern Iraq had been set alight, but Defence Minister Geoff Hoon said fears that hundreds of wells would be torched have not yet been realised.
The 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 is already factored into prices, analysts said.
"It is the weight of oil, rather than the force of bombs, which is pushing markets lower," said Leo Drollas of London's Centre for Global Energy Studies. "OPEC is now producing more oil than has been lost."
Benchmark Brent crude oil fell 42 cents to $25.08 per barrel by mid-morning in London, having touched a three-month low of $24.80. US crude futures also plumbed fresh three-month lows, down 43 cents to $27.69.
Oil has lost 26-27 per cent of its value in a week.
OPEC exporters, especially US ally Saudi Arabia, have hiked output dramatically over the past few months, first to cover a strike in Venezuela and then to cool a price spike since December fuelled by war fears.
Drollas said OPEC was now pumping 300,000 barrels per day more oil than it was in November, when Venezuela and Iraq were both pumping at full capacity.
"Burning Iraqi oil wells is a longer-term issue for oil markets, but it is neither here nor there for supply now because exports have stopped anyway and this has been factored into prices," he said.
Brokers said investors were selling positions built up on futures markets when crude rallied to a 12-year peak close to $40 in late February on anticipation of a war in Iraq.
"As the military assault unfolds it will start to determine the final price outcome. The market has now moved from a war premium to a victory discount," said Sydney-based independent oil analyst Simon Games-Thomas.
Price hawks in OPEC are already voicing concern about the slump, which is good news for world economic growth but hits revenue for the cartel of mostly Middle Eastern countries.
It has also revealed deep splits in the organisation over the war with Iraq.
OPEC Secretary-General Alvaro Silva said on Thursday that members have been authorised to use their spare capacity to make up for the shortage of Iraq supply.
Iranian Oil Ministry Adviser Hossein Kazempour Ardebili said on Friday any increase in output would be a "violation" since no decision had been taken to raise OPEC quota limits.
"The OPEC general-secretary is not authorised to say this and it is OPEC that could decide about it and none of the OPEC ministers approved it," Kazempour told state television.
"It is giving a green light to America to launch an attack and none of the OPEC members wants to give a green light to attack another OPEC member," he said.
OPEC President Abdullah al-Attiyah said on Thursday the exporter group saw no need to pump more oil into a saturated market.
Despite the oil well fires, a British military spokesman said US forces should seize much of Iraq's Rumaila oilfields intact. A Reuters correspondent travelling with the 1st Marine Regiment in southern Iraq reported fires there.
The oilfields in southern Iraq, of which Rumaila is the largest with 400 oil wells, pump about half of the country's 2.5 million barrels of daily production.
Iraqi Oil Minister Amir Muhammed Rasheed has denied the reports.
British troops secured a position on the Faw peninsula on the Gulf, which is a strategic oil export route which connects to Mina al-Bakr and Khor-al-Amaya.
Analysts warned that with the US invasion to topple Saddam Hussein in the early stages, there remained plenty of opportunity for prices to spike higher again.
So far other Gulf producers have reported no disruptions to oil production, nor any disturbances to tanker movements.
Kuwait, Iran, the United Arab Emirates, Saudi Arabia and Qatar together ship about 15 million bpd of oil through the Gulf.
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