Steven, another opinion. By the way this article correctly indicates that Kuwaiti production will be impacted as well.
Agency Doubts OPEC's Ability
To Stem Oil Lost in Case of War
By BHUSHAN BAHREE
Staff Reporter of THE WALL STREET JOURNAL
VIENNA -- The International Energy Agency said OPEC alone won't be able to make up for lost Iraqi oil exports in the event of a war. The statement suggests that the agency, the oil-supply watchdog for the industrialized world, may need to tap into emergency oil reserves to maintain adequate supplies of crude and keep prices from skyrocketing.
The IEA's assessment in a report released Wednesday irked officials at the Organization of Petroleum Exporting Countries, whose oil ministers failed at a meeting here Tuesday to suspend the group's official output limits. "There are many figures, but I think we have enough" oil-production capacity, said Bijan Namdar Zangeneh, Iran's oil minister.
The IEA said the global oil-supply system is "running on empty." The agency, based in Paris, was created after the oil crisis of 1973-74 to help avert future oil shocks. It oversees strategic stocks of oil held by the U.S., Germany, Japan and others of its 26 members.
OPEC is concerned that a rush by the IEA to dip into its emergency reserves could flood the market and trigger a swift drop in world oil prices. On Wednesday, the benchmark rose $1.11 on the New York Mercantile Exchange to $37.83 a barrel.
The IEA data concludes that OPEC can't cover a disruption of Iraqi exports if a war started later this month, though by May it could offset the loss of Iraqi supplies as well as a small drop in Kuwaiti production. The IEA's projection relies on several assumptions: a seasonal decline in world consumption; rising output from Venezuela, whose production has been hobbled by a general strike; and capacity increases by Saudi Arabia, the world's largest oil exporter.
Yet the situation is dicey. The IEA reckons that if war cut off Iraq's two million barrels a day in exports from mid-March until May, and some 300,000 barrels a day of production were lost in Kuwait, the world would face a shortfall of 1.68 million barrels a day in the second half of this month. In April, the shortfall would narrow to 580,000 barrels a day. In May, OPEC could meet expected market needs in full, the IEA projects.
The warning countered a pledge made Tuesday by Ali Naimi, the oil minister of Saudi Arabia, the world's largest oil exporter, that "there will be no shortage of oil" in the event of a war. Saudi Arabia, which declines to detail its production, is believed to be the only country with significant unused capacity.
Yet the IEA data showed that Saudi capacity to offset losses was less than many had thought. With output already at some 9.1 million barrels a day, the IEA figures Saudi Arabia could pump only an extra 400,000 barrels of oil now. This would rise to 600,000 barrels a day in April, and 900,000 barrels a day in May, based on early March production levels and assuming a ramp-up of capacity over the next six weeks.
The IEA's executive director, Claude Mandil, has promised that the agency would act swiftly to release oil from its vast emergency stockpiles, if needed. But Mr. Mandil has also made clear that the IEA would act only after it consults with OPEC and determines that the exporters' group can't fully make up for lost supplies.
The IEA and national governments who control emergency stocks are cautious about releasing them, as they are seen as the final line of defense against supply shocks. Many experts believe that if war breaks out with Iraq, stocks will be tapped to provide psychological support to skittish oil markets.
Write to Bhushan Bahree at bhushan.bahree@wsj.com2 |
