Focus-Oil Gains on Iraq Tension, OPEC Experts Meet
Reuters
26-JAN-98
LONDON, Jan 26 (Reuters) - Oil markets rose on Monday on fears that the United States may resort to military action in a dispute with Iraq over U.N. weapons inspections.
Benchmark North Sea Brent crude futures were trading 36 cents firmer at $15.10 a barrel at 1832 GMT following Friday's close of $14.74 and session low of $14.70, levels not seen since 1994.
The gains overcame bearish fundamentals of global oversupply and faltering Asian demand that have pushed prices down by 30 percent in the past three months.
Traders said they expected the markets' advance to remain cautious during a gathering in Vienna of a market monitoring subcommittee of the Organisation of the Petroleum Exporting Countries.
The 11-member cartel brought forward the meeting to discuss the fragile trading conditions that have squeezed budgets across their oil-dependent economies.
Oil ministers from Iran, Kuwait, Nigeria, OPEC Secretary General Rilwanu Lukman, OPEC President Ida Bagus Sudjana of Indonesia and an Algerian OPEC governor were discussing reports on the state of the market from OPEC experts.
Brokers said they did not expect strong direction from the meeting, which has no power over OPEC quotas but could recommend the group consider a full emergency meeting before the next scheduled conference in June.
Sudjana said on Monday he did not believe OPEC's new production ceiling of 27.5 million barrels per day (bpd) was too high and added he thought members were adhering to it.
The OPEC gathering was overshadowed by news of a standoff between the United Nations and Baghdad over U.N. demands for unconditional access by U.N. weapons inspectors to suspected weapons sites in Iraq.
Russia sent a special envoy to Baghdad on Monday to discuss the dispute and it said it would oppose the use of force to resolve the dispute.
But the U.S. State Department said time was ''running out'' for a diplomatic solution to the standoff.
Spokesman James Rubin said the United States did not object to Russia sending a special envoy but was pessimistic about Moscow being able to persuade Baghdad to comply with U.N. demands for unfettered inspections of weapons sites.
''The issue is not who the messenger is. The issue is the message: compliance, compliance, compliance and no more excuses,'' Rubin told reporters.
Other price support came from comments by an unidentified U.S. official that the United States was moving closer to deciding whether to launch a military strike on Iraq but has made no decision on the matter.
The U.S. official took issue with a New York Times report quoting an unnamed National Security Council official as saying Washington planned to make a final round of diplomacy, issue an ultimatum, then act.
U.S. Secretary of State Madeleine Albright said last week the face-off with Baghdad was unacceptable and would not be allowed to continue.
Dealers have feared an escalation of tensions could disrupt the limited oil sales allowed to sanction-bound Iraq by the world body.
''Although this is not directly connected to the oil-for-food deal who is going to run ships in to Ceyhan (the Turkish oil terminal for Iraqi crude) if there is a war going on,'' one broker said.
But other brokers saw downward pressure on prices from a report that U.N. Secretary General Kofi Annan was set to propose a rise in the value ceiling for Iraqi oil exports.
The Middle East Economic Survey said that a report by Annan to the Security Council in the next few days would propose an increase in the limit to $3 billion in March from $2 billion now, but a second increase mooted for June would depend on the circumstances at the time.
The increase in the value would result in a rise in exported volumes to around 1.368 million bpd, it said. Baghdad is currently exporting almost one million bpd. ^MORE@ Reut14:19 01-26-98 SLUG: BC-OIL-MARKETS
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