THE SKEPTIC: Saudi Oil Rides In, But Not To The Rescue
28 Jan 10:02
By Selina Williams
A DOW JONES NEWSWIRES COLUMN
LONDON (Dow Jones)--Could Saudi Arabia and OPEC prevent skyrocketing oil
prices if war disrupts Iraqi crude exports?
Don't bet on it.
After all, the Organization of Petroleum Exporting Countries - together with
its largest producer and de facto leader - will have a double-whammy to contend
with - Iraq and Venezuela.
Don't forget how much of an impact OPEC's recent pledge to deliver an
additional 1.5 million barrels a day of oil into the market had on prices.
Almost none.
The promise of extra oil didn't even stall a price rise - European benchmark
Brent is still over $30 a barrel, even with OPEC and non-OPEC producers pumping
at close to peak capacity.
That's why oil-revenue dependent Saudi Arabia is just as concerned as the
leaders of other struggling economies about the knock-on effect of high oil
prices.
Instead of raking in more money from higher prices, oil at $30 a barrel
chokes economic growth and caps demand for crude. It thus hits the budgets and
finances of oil-rich, but oil-revenue dependent, economies such as Saudi Arabia
and most of the other OPEC member nations.
There are already signs that last year's high oil prices retarded economic
recovery in the U.S. - one of OPEC's main markets.
Unfortunately, it isn't clear what more Saudi Arabia can do to curtail a
burgeoning crisis. Within OPEC, Saudi Arabia has the most spare capacity, but
there is a limit to how much and how long higher output levels can be
maintained.
Saudi sources say production is already close to 9 million barrels per day.
Another 1.5 million b/d and that's maximum output - an uncomfortable level that
could damage some oil fields in the long term.
True, the U.A.E. has spare capacity, but not a lot, something like 350,000
b/d. A pittance, really.
Non-OPEC Russia can't add much more oil to the market thanks to restricted
export capacity and Norway is peaked out.
Enter Venezuela into the equation and the possibility of a military strike on
Iraq, and the situation becomes dire.
Yes, there have been breakthroughs in ending the strikes in strife-torn
Venezuela and production is up. But some fear the damage to fields could lead
to a permanent output reduction of close to 20%. And the country is still
politically unstable.
Iraqi uncertainty is no secret. Only last week, Saddam Hussein threatened to
set his oil fields alight if the U.S. invades.
Kuwaiti oil fields burned for nine months after the Gulf War and it took
almost a year to restore production to pre-war levels. A similar scenario in
Iraq would be disastrous for oil prices, because up to 2.5 million b/d would be
taken out of the market. OPEC might not be able to offset this gap. Worse, this
unpleasant scenario assumes Kuwaiti fields don't fall victim to Iraqi attacks.
So, while U.S. and U.K. politicians continue to pump up the volume on
political rhetoric, there will be little to stave off an oil - and oil stock -
crisis if the worst-case scenario unfolds.
-By Selina Williams, Dow Jones Newswires; 44-20-7842-9262;
selina.williams@dowjones.com
(END) Dow Jones Newswires
01-28-03 1002ET |
