CRUDE OIL PRICING & RELATED / PART 1 - International In Scope
11/02 10:51 Iraqi oil exports safe from latest U.N. fracas-traders
LONDON, Nov 2 - Baghdad's latest altercation with the United Nations will not boost sunken oil prices by cutting into Iraqi supply, oil traders said on Monday.
Iraq's announcement over the weekend that it had cut off all cooperation with U.N. weapons inspectors triggered swift U.N. condemnation and threats of military retaliation from the United States.
Baghdad's move reflected mounting frustration that it seems to be getting no closer to an all-clear from U.N weapons inspectors needed to end the eight-year embargo.
But oil traders emphasised that it did not imply any immediate threat to Iraq's "oil-for-food" scheme, a U.N-sponsored exemption from sanctions allowing limited crude exports to fund humanitarian aid.
Around 1.9 million barrels per day are currently exported under the scheme.
"(Iraqi leader) Saddam Hussein is always capable of irrational acts, but he's generating so much money with the humanitarian sales that I can't believe he'd shoot himself in both feet by endangering it," said Peter Gignoux of Salomon Smith Barney investment bank.
"Just because there's political trouble, it doesn't mean there'll be oil trouble," echoed one trader with a big buyer of Iraqi crude.
"If either Washington or Saddam want to combine the two issues then there could be problems, but recently humanitarian sales have been going pretty smoothly."
Swelling Iraqi exports this year have played a big part in tying oil prices near their lowest in real terms for quarter of a century.
Brent crude prices gained barely 10 cents a barrel on Iraq's announcement, far less than a similar statement could have spurred at the start of the two-year oil-for-aid deal. Traders now treat Iraqi headlines with great caution, stung before by political bust-ups that ultimately have no effect on oil supply.
Yet the potential impact of Baghdad's move is increased by the expiry of current six-month tranche of the oil-for-food deal on November 25.
Traders say the worsening atmosphere increased the likelihood of a delay to starting the new sales period.
"We haven't heard anything from (Iraqi state oil marketer) SOMO yet on new contracts. I guess they will be waiting for instructions to come from the top and that may take longer now things have got a bit sticky," said a lifter.
It takes far less time to get supply contracts finalised than in the early stages of the deal, when new lifters had to travel to Baghdad to sort out details. Negotiations are now all done by fax.
But traders noted that Iraq has previously liked to make its presence felt in the run up to an OPEC meeting, also due on November 25.
And bureaucratic obligations at the U.N. and potential changes to the deal's curent structure will still take time.
"It's all been left pretty late as usual. I'm betting on a couple of weeks delay," he said.
Lifters do not believe Iraq now has any opposition in principle to the deal, which has become central to its economic survival.
A showdown earlier this year, resolved only by a Russian-brokered settlement through U.N Secretary-General Kofi Annan in Baghdad, had little effect on loadings. Washington is just as likely to impose delays as Baghdad, lifters said. And even military strikes would not necessarily halt exports.
"There have been bombings before and shipments have carried on, although if oil facilities are targeted then that would obviously change things," said one big lifter.
Uncertainty over the oil-for-aid scheme has had an enormous impact on oil prices over the last three years.
The market tightened as buyers ran down stocks in anticipation of Iraqi oil that then took far longer than expected to arrive, and was subsequently subject to sudden stoppages on each six-monthly renewal.
But this year crude prices have tumbled as Iraqi exports ballooned to by 700,000 barrels per day, and the June renewal went through with no interruption.
International benchmark Brent crude on the London futures market stood at $13.36 a barrel on Monday, against last year's average of $19.30.
11/02 13:23 Former Iraqi oil chief doubts U.N. will ok attacks
WASHINGTON, Nov 2 - Iraq's former oil minister said on Monday he doesn't think the United States will be able to convince the United Nations to approve military strikes against Iraq for not cooperating with weapons inspectors.
"I really cannot see how the United States will be able to gain the support of the United Nations for any military strike," Issam Al-Chalabi told reporters after a speech at a Georgetown University conference on Iraqi sanctions.
Al-Chalabi served as Iraq's oil minister from 1987 to 1990. He now owns an energy consulting firm based in Jordan.
U.S. Defense Secretary William Cohen warned on Sunday thatIraq could face military attack if Iraqi President Saddam Hussein continued to ignore U.N. sanctions and warnings.
On Monday, U.S. President Bill Clinton met with members of his national security team on the current crisis.
Iraq's 250-member Parliament unanimously voted in support of cutting cooperation with arms inspectors and monitors until the U.N. Security Council reviewed lifting sanctions against Iraq.
If an attack were to come, Al-Chalabi said he did not think Iraq's oil facilities would be hit, because the revenue earned from oil exports is supposed to be used for humanitarian goods under the United Nations-sponsored oil-for-food program.
Attacking an oil pipeline or pumping station would almost be like directly attacking the Iraqi people, according to Al-Chalabi. "I don't think they would target the oil facilities," he said.
Iraq's oil industry was devastated during the 1991 Gulf War, causing more damage in six weeks than occurred over the country's entire eight-year war with Iran, Al-Chalabi said.
Iraq's oil resources are the world's second largest, after Saudi Arabia, containing about 112 billion barrels of proven oil reserves.
If Iraq's oil production is to recover to its pre-Gulf War capacity of about 4.5 million barrels per day (bpd), $5 billion in repairs will be needed for the country's oil industry, Al-Chalabi said.
At the moment, Iraq is able to produce 2.2 million bpd, several million barrels short of what the country is allowed to export every six months -- currently $5.25 billion worth, under the U.N. oil-for-food program.
With the oil-for-food deal with the United Nations, which began in December 1996, Iraq is allowed to sell limited quantities of oil every six months to buy food and medicine for Iraqi people, who have suffered under the sanctions placed on Iraq after it invaded Kuwait in August 1990.
11/02 14:12 Former Iraqi oil chief sees oil price $12-$14/bbl
WASHINGTON, Nov 2 - Iraq's former oil minister said on Monday world oil prices should not drop further from current levels, but he doesn't think OPEC and other major oil- producing nations will be able to increase prices either.
"The situation will remain as it is. We will continue to live with low prices for some time to come," Issam Al-Chalabi told reporters after a speech at a Georgetown University conference on U.N. sanctions against Iraq.
"But I don't think we'll go further down," he said. "I think we'll maintain this current (price) level of $12 to $14 a barrel."
Al-Chalabi served as Iraq's oil minister from 1987 to 1990. He now owns an energy consulting firm based in Jordan.
Al-Chalabi also said he expects Saudi Arabia, Mexico, Venezuela and other major oil-producing countries will try to further reduce crude production in the hope of raising prices, but they won't agree on a deal.
"I don't believe there's going to be (further) cuts," he said.
Al-Chalabi earlier on Monday, in remarks to reporters, predicted the United States will not be able to convince the United Nations to go along with air strikes against Iraq for not cooperating with weapons inspectors.
"I really cannot see how the United States will be able to gain the support of the United Nations for any military strike," he said.
If an attack were to come, Al-Chalabi said he didn't think Iraq's oil facilities would be hit, because the revenue earned from oil exports is supposed to be used for humanitarian goods under the United Nations sponsored oil-for-food program.
Attacking an oil pipeline or pumping station would almost be like directly attacking the Iraqi people, according to Al-Chalabi. "I don't think they would target the oil facilities," he had said.
11/02 16:06 Oil wins brief support from Iraq/UN tension
LONDON, Nov 2 - Oil prices received a brief boost on Monday from the latest Iraqi-U.N. standoff but concerns over global oil oversupply pushed prices back down again by the close.
International benchmark Brent closed 15 cents weaker at $13.07, about a third down on last year's average.
Prices rallied to a peak of $13.45 on Monday in reaction to Iraq's decision over the weekend to cease all cooperation with U.N. weapons inspectors.
Baghdad remained defiant on Monday despite United Nations' condemnation and threats of military retaliation from the United States, Britain and Germany.
U.S. President Bill Clinton on Monday demanded that Iraq allow U.N. inspectors to "finish the job" they were sent to do and said he would not rule out any options until the inspectors were allowed to work.
But Iraq's Deputy Prime Minister Tareq Aziz said Baghdad would not back down on its decision, no matter what the rest of the world threatened.
Despite the rhetoric, weaker oil prices reflected traders' weariness of false alarms over disruptions to Iraqi oil exports and the bearish impact of the prolonged oil glut.
"It's not easy to tell what impact all this will actually have," said Christopher Bellew of Prudential-Bache International.
"It's difficult to know whether the U.S. has enough support for military action any more and it may just be a bit of Iraqi posturing ahead of the oil-for-food renewal."
The current six-month phase of the humanitarian sales programme expires on November 25.
Mounting Iraqi exports this year have contributed heavily to pushing oil prices to their lowest level in real terms since the 1970s.
OPEC ministers dispappointed oil traders last week when they left a South African industry conference last week without agreeing to cut production.
Although OPEC members Kuwait and Algeria called for further output cuts on top of 3.1 million barrels a day agreed so far this year, key producers Saudi Arabia, Venezuela and non-OPEC Mexico have made it clear they do not want to cut again.
11/02 16:19 NYMEX oil ends off; market turns cautious on Iraq
NEW YORK, Nov 2 - Crude oil futures on the News York Mercantile Exchange ended lower Monday as market players turned cautious about the latest flap over Iraq's move halting cooperation with U.N. arms inspectors, traders said.
The December crude contract settled at $14.36 a barrel, down six cents, after sellers came in late as they saw no immediate military confrontation over the issue, traders said.
In the early going, the front-month contract surged to a session high of $14.74, up 32 sents from Friday's close, in an initial reaction to Iraq's decision Saturday to end cooperation with U.N. arms inspectors.
Profit-takers took advantage near midday, pruning gains. Later, a bout of short covering again moved the market up before the late selling developed.
Refined products, whose December contracts traded on top of the board for the first day on Monday, weakened toward the close, following crude's lead.
December heating oil ended at 39.36 cents a gallon, off 0.50 cent, while gasoline pared down earlier gains, finishing at 44.31 cents a gallon, up 0.14 cent.
In London, IPE December Brent ended down 15 cents at $13.07 a barrel.
Iraq on Saturday said it was ending cooperation with U.N. arms inspectors until the Security Council reviewed the lifting of sanctions against it and unless Richard Butler, chief of the U.N. Special Commission (UNSCOM) was removed. UNSCOM oversees the dismantling of Iraq's chemical and biological weapons.
The U.N. has said it would lift the sanctions only if those weapons had been dismantled. The sanctions, which include an oil embargo, were imposed after Iraq invaded Kuwait in 1990.
Over the weekend, the U.N. Security Council swiftly condemned the latest Iraqi statement and the U.S. threatened military action. On Monday,. Britain and Germany on Monday added their warnings to Iraq.
After meeting with his national security team at the White House on Monday, President Clinton said Iraq's refusal to cooperate with the weapons inspectors was "completely unacceptable" and that Iraq must let U.N. arms inspectors "finish the job."
"Until the inspectors are back on the job, no options are off the table," Clinton said.
"For Iraq, the only path to lifting sanctions is with complete cooperation with the weapons inspections, without restrictions, run-arounds or roadblocks," Clinton said at a White House event.
After headlines of Clinton's stand were flashed on the wires, crude and product futures moved down in unison.
"The dropping of the prices may not be a direct effect of the headlines," said a NYMEX floor trader.
But the trader, who asked not to be identified, said: "This has happened a couple of times before, where Americans mount a hard-line stand, but it did not amount to much.
"Traders have been burned too many times," he said, "and so I don't think these headlines are quite enough to move the market again," he added.
In a similar stand-off with U.N. arms inspectors in February, the crisis was diffused by U.N. Secretary-General Kofi Annan, who won an Iraqi pledge that the inspectors would be given unhampered access to the weapon sites. The pledge was made amid a U.S. threat of air strikes against Iraq for its noncompliance with Security Council resolutions.
One NYMEX trader said the market was careful to interpret the latest actions by Iraq, the Security Council, the U.S. and its allies.
"The bottom line is if any action leads to a bottleneck in Mideast crude supply," said the trader, who noted that as of Monday, the U.N. oil-for-food program, under which Iraq is allowed to export a small amount of oil, was fully operational. Proceeds of the program are mostly used for humanitarian needs of Iraqi citizens.
11/02 17:14 US Crude Outlook -Iraq gives boost despite imports
NEW YORK, Nov 2 - U.S. crude oil traders were cautiously optimistic about oil prices on Monday, after crude futures began the week on a high note, supported the growing tension between Iraq and the international community.
"I think we've been making a bottom in crude," said Warren Tashnek, of FIMAT USA Futures. "Obviously, the Iraqi news is helping the market," he continued, but added that he was bullish about crude prices even before Iraq's Parliament decided to halt cooperation with arms inspectors.
On Monday, Iraq's Parliament voted to halt cooperation with U.N. inspectors until the U.N. Security Council reviews lifting the sanctions imposed on Iraq after the Gulf War.
U.S. President Bill Clinton demanded that Iraq allow United Nations weapons inspectors to finish their work, and warned that all options were open until the inspectors returned to their duties.
Front-month crude oil futures gained up to 32 cents on the news, touching an intraday high of $14.74 a barrel. But the December contract ran into stiff resistance at those levels, and retreated into negative territory later in the day, settling at $14.36 a barrel, down six cents.
"It's going to take a while to improve these fundamentals," Tashnek said.
Although the futures market permits some optimism, cash traders point to less supportive fundamentals, both domestically and on the foreign side.
Imported crude continues to be amply offered into U.S. markets, as traders point to several players offering North Sea Brent into the Gulf Coast.
"There is a ton of foreign crude coming this way. The arbitrage is so wide open, it looks like the Grand Canyon," said one cash trader for a major oil company. The arbitrage, which settled at $1.29 on Monday, and is made even more attractive by the relatively cheap price of prompt, or Dated Brent around $1.04 under December Brent.
Light Louisiana Sweet, the main domestic sweet crude, will likely face the sharpest threat from foreign supplies, traders said. LLS weakened by 25 cents to trade at nearly a 40-cent discount to WTI/Cushing last week as a result, then lost several more cents in listless trade on Monday.
In addition to one U.S. refiner's several large vessels carrying Brent, traders were talking about several smaller vessels being fixed by other players. Brent was on offer at around 90 cents under January West Texas Intermediate, Gulf Coast traders said.
Colombia's main sweet, Cusiana, is also weaker, and is valued around $1.55-1.50 under WTI, although details about state oil company Ecopetrol's latest tenders were not available on Monday. Differentials for Cusiana have widened by almost 30 cents since last month.
Cash traders note that sour crudes are also under pressure, especially after last week's news that Chevron's 295,000 barrel per day (bpd) Pascagoula, Miss., refinery will only become fullyoperational at the end of the year. The refinery, which was damaged when Hurricane Georges hit the Gulf Coast in September, runs mostly sour crude, and its problems have eaten into U.S. demand for sour crude.
Venezuela's Mesa/Furrial reportedly traded at $2.65 under WTI last week, having slipped by more than 30 cents in two weeks.
Similarly, Ecuador's sour crude, Oriente is said to be on offer at $2.60 off WTI into the U.S. Gulf, although there is some talk that buyers are as far away as minus $2.80.
The main domestic sour grade, West Texas Sour/Midland has also weakened, and was talked around $1.70 under U.S. benchmark WTI. Last week, WTS was trading around minus $1.48, after Mexico's state oil company Petroleos Mexicanos briefly suspended830,0000 barrels per day of its offshore crude production last week as a precaution against Hurricane Mitch. But the storm has lost much of its strength since then, and traders don't expect any further interruptions to sour crude imports from Mexico.
11/02 17:19 US Products Outlook-Imports, restarts pound prods
NEW YORK, Nov 2 - Bearish pressure from imports and from last week's return of two U.S. refineries from fall turnarounds should dominate oil products this week, traders said.
"You think gasoline is cheap here? The price is desperately cheap in Asia and Europe," said one Gulf trader about the situation cracking open the arbitrage window in the New York Harbor.
While traders said at least 12 cargoes of gasoline were in the water on their way to the New York Harbor, one Gulf trader said six cargoes were fixed to ports all over the U.S. on Monday alone.
Those six included cargoes from Europe, where the Rhine River, a major route to the Rotterdam refining hub, is flooded and partially closed to barges, and a cargo from St. Croix in the U.S. Virgin Islands.
Also adding pressure on products is the fact the scheduled maintenance season is over, with no more major turnarounds on the slate until the spring.
Last week Sun Co. <SUN.N> restarted its 177,000 barrel-per-day (bpd) crude distillation unit at its Philadelphia refinery which was just part of around 430,000 bpd of production to return from maintenance shutdowns that week.
The Sun turnaround came just Tosco's Bayway turnaround, and the two combined helped knock East Coast crude runs to their lowest level in five years.
The low level of crude runs caught some New York traders short last week after a small draw on gasoline brought about in part by short supplies of blending stocks. This week traders said prices should be beaten down.
"Gasoline has been unusually strong with a number of turnarounds in the northeast - i expect it will soften," said one New York trader with a major refining company.
"On the distillates, it is the same type of situation -- there will be a bit more pressure until the we see colder weather," he added.
Distillates in the northeast were supported last week as traders with storage took advantage of the contango in the market to buy the cheaper prompt supplies of the heating fuel, lifting outright prices by over a penny to around 38 cents per gallon.
Now Gulf traders say the additional storing of heating oil in the New York Habor leaves little room for Gulf gasoline to be sold to up North. In addition, adding further pressure, traders said that gasoline storage was high in the Midcontinent trading hub and the Caribbean.
"Nothing looks bullish here all week," said one Gulf trader.
In the Harbor, traders said jet fuel was the only thing looking up, still in short supply from refinery problems in the Gulf. "There is not a whole lot of jet around...there is a lot of demand but very low stocks," said a Northeast trader.
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