Iraq’s Return to Market Unlikely to Affect Oil Prices

JEDDAH, 21 June 2003 — The Kingdom expects oil prices to remain firm despite Iraq’s return to the market, a Saudi oil official said yesterday.

Oil prices will remain steady at around $25 per barrel “for at least another year,” the official told the Associated Press.

The first shipment of Iraqi oil since the Iraq war ended is scheduled to be pumped on to a tanker tomorrow in the southern Turkish port of Ceyhan. The oil flows via pipeline from the oil fields of northern Iraq. The official said that although the United States had been accused of launching the war to bring down oil prices, lower prices were no longer to America’s advantage.

“The United States needs a lot of money to rebuild Iraq and their main resource will be funds from the sale of Iraqi oil. We don’t believe they will flood the market to bring downward pressure on prices, which is not possible for at least several years anyway because of the state of Iraq’s oil installations,” he said.

Iraq’s oil industry has suffered war damage, postwar looting and a chronic shortage of spare parts during 12 years of UN sanctions. Before the war began in March, Iraq pumped around 2.1 million barrels a day.

The official said that because of the poor state of Iraq’s oil facilities, “the pace and the extent of the return of Iraqi crude to the market will be gradual” and will not weaken oil prices. Iraqi officials have said they hope to export 1 million barrels a day by the end of June and 2 million barrels a day by the end of the year, but some analysts regard these estimates as too optimistic.

Iraq is now producing 750,000 barrels a day, refining it into gasoline and extracting natural gas from the crude for domestic sales. The member states of the Organization of Petroleum Exporting Countries met last week to assess the impact of Iraqi oil exports. The 11-member body decided not to change is current output target of 25.4 million barrels a day and to reevaluate the impact of Iraq’s return at a meeting on July 31.

Oil prices have hovered around the upper limit of the OPEC price band of $22 to $28 a barrel. US light crude for August delivery rose 84 cents to $29.35 a barrel. Benchmark Brent crude in London was up 68 cents at $26.97 a barrel.