Iraq's Disorder May Lead OPEC to Hold Output Steady
By NEELA BANERJEE
KUWAIT, June 8 - This was supposed to be a tough season for the world's largest exporters of crude oil: they expected demand for petroleum to look weak, Iraq's return to the oil market after the war to be strong and prices, as a consequence, to fall.
But none of that has come to pass. So when the Organization of the Petroleum Exporting Countries meets on Wednesday in Doha, Qatar, oil industry analysts said, it is likely to do nothing about current production levels.
"OPEC gets a free pass at this meeting" from making a decision, said Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation in New York.
During the war, oil traders thought that Iraqi exports would resume by late May or early June. Now, those expectations are likely to be delayed at least a month.
"Iraq is coming back slower and weaker than originally thought," Mr. Goldstein said. "Prices are hovering around $30 a barrel, and we're going into seasons of stronger demand in the third and fourth quarters."
As far back as early March, OPEC members were concerned about how the new reality of an Iraq free of Saddam Hussein and United Nations sanctions would affect the successful strategy the group has employed for almost four years to keep prices fairly lofty ? despite the economic cycles the global economy has passed through.
Iraq was a founding and active member of OPEC, but since the Persian Gulf war of 1991, its exports have been regulated by the United Nations oil-for-food program, not OPEC's quota system.
OPEC understood that an American victory in a war with Iraq, which seemed assured, would lead to a repeal of the United Nations program. And indeed after the war, the American-appointed civil administration in Baghdad and the Iraqi oil ministry set an aggressive schedule for resuming exports.
In an interview two weeks ago, just after sanctions were lifted, Thamir Ghadhban, interim chief executive of the oil ministry, said that Iraq would be exporting about a million barrels a day by mid-June. The Iraqis were then exporting nothing and not even producing a million barrels a day.
Mr. Ghadhban's estimate appears now to have been highly optimistic. Iraq is in the process of selling about 10 million barrels of oil it has in storage in Turkey and Persian Gulf countries. But its ability to start a regular flow of oil for export is hampered by security problems in its southern oil region, particularly the vast Rumaila fields.
Jabbar Ali al-Leaby, director of the country's South Oil Company, which is responsible for production at Rumaila and other areas near Basra, has complained long and bitterly that security problems and continued looting have made it extremely difficult to increase production.
Notably, looting has destroyed the Garmat Ali water-treatment installation, which supplied water to Rumaila for injection into wells to aid in the extraction of oil. The United States Army Corps of Engineers, which has so far been coordinating the reconstruction of Iraqi oil facilities, insists that production at Rumaila can increase without the water injection. But independent oil experts dispute that.
Raad Alkadiri, director of the Market Intelligence Service for the consulting group PFC Energy, wrote in a report after a recent eight-day trip to Baghdad, "Ongoing looting, and the inability of Southern Oil Company personnel to carry out appraisals of the local fields because of a lack of security, has severely hampered the process of bringing production back online at the country's workhorse southern fields."
In the meantime, commercial supplies of gasoline and diesel oil in the United States and other major oil-consuming countries have remained low, despite the fact that OPEC produced far above quota levels earlier this year.
Industry analysts said that one reason for the persistently low supplies may be that demand was more robust than thought, despite the sluggish economy and in some places, the outbreak of SARS.
Another reason, analysts said, may be that some OPEC members exaggerated their output information. Mr. Goldstein said his company estimated that Venezuela produces 500,000 barrels a day less than the 3 million or so barrels the government has reported.
Vera de Ladoucette, senior director for Middle East research at Cambridge Energy Research Associates, said that Indonesia and Iran had also fallen short of their OPEC quotas. Cambridge Energy estimated that OPEC in April exported 26.1 million barrels a day, compared with the group's official tally of 27.4 million barrels a day.
Iraq will probably not send a delegation to the OPEC meeting. Yet despite the absence of its technocrats from Doha, and of its oil from the markets, Iraq is certain be on the minds of those attending, all of whom will be watching closely in coming months for the revival of the country's once-rich oil industry.
"Iraq may not be there in body," Mr. Alkadiri said, " but it will certainly be there in spirit."
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