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COMMODITIES: NATO Attacks Strengthen Oil Prices

Estrella Gutierrez

CARACAS, Apr 19 1999 (IPS) - Cent by cent, oil spot prices have been rising this month – to two dollars above last year’s average – and last week’s prices on the futures market were the highest seen in a year, partly due to the conflict between the North Atlantic Treaty Organisation (NATO) and Yugoslavia.

In spot trading of benchmark oils, prices rose between 0.14 and 0.41 cents per barrel (159 litres) last week, to two dollars higher than the 1998 average.

On the futures market, the New York market rate for delivery in May rose to 17.46 dollars a barrel last Friday, the highest price seen in over a year.

In Venezuela – the world’s third largest oil exporter and the only member of the Organisation of Petroleum Exporting Countries (OPEC) in the Americas – the Energy Ministry said the market had been influenced by “the high volume of purchases caused by concern over the conflict between Yugoslavia and NATO.”

Such purchases, which have swum against the current of the gradual entry into the season of low demand, have so far neutralised the impact of the American Petroleum Institute (API) announcement that U.S. stockpiles were larger than estimated.

API reported that the United States, the world’s top consumer of oil, had stocks of 218.5 million barrels of gasoline, 3.06 million more than projected, while stocks of crude stood at 343.2 million barrels, 1.03 million above projections.

Uncertainty with respect to the duration and outcome of the NATO air strikes against Yugoslavia has brought uncertainty regarding the rise in demand and transport difficulties, as the conflict does not involve production zones.

Benchmark North Sea Brent crude averaged 14.54 dollars a barrel last week, nearly three dollars above the year’s average so far of 11.71 dollars. Last week’s price was also nearly two dollars higher than the 1998 average of 12.76 dollars.

In 1998, the price of North Sea Brent crude plunged 49 percent below the 1997 average, in the context of the overall price debacle, due to the wild excess offer, which was not curbed by the – only partially fulfilled – production cutbacks agreed by exporters.

The excess offer was the result of a sharp slowdown in the rise in demand caused by the crisis in Asia – the region where consumption was growing the fastest – which found large private and state exporters caught up in a race toward expanding supply, which threw the market sharply off balance.

The Venezuelan Energy Ministry said the strengthening of prices was also a consequence of the perception that supply was in fact steadily shrinking, in compliance with the latest cutbacks agreed among producers.

Last month, OPEC members and independent producers agreed to withdraw 2.1 million barrels a day (bpd) from the market as of Apr 1.

Traders believe there are grounds for confidence that producers will largely live up to the agreed cutbacks, according to analysts in London and New York, who say that is driving prices mad.

Iran – OPEC’s second largest exporter, which was expected to slowly comply with its cutback – confirmed last Thursday a 10 percent drop in production this month, which boosted confidence in the organisation’s discipline.

The pledge by OPEC – which controls around half of all exports – to withdraw more than 700,000 bpd from the market began to be taken seriously since the clients of the organisation’s leading members received notifications of cutbacks.

Non-OPEC exporters Mexico, Norway, Russia and Oman have also committed to cutbacks, with the aim of bringing supply back into line with global demand, calculated by the World Energy Council at 75.7 million bpd this year.

Preliminary independent estimates indicate that the current excess offer on the market is no higher than 300,000 bpd – compared to two million bpd in February, which sank prices to a 30- year low.

A third element that drove prices up last week was the expiration of contracts on the London market, according to the Venezuelan Energy Ministry.

But local oil expert Alberto Quiros said the arrival of the northern hemisphere summer and the consequent drop in consumption, as well as the still large stockpiles, would be felt by the market once it absorbed the psychological impact of the agreed cutbacks.

Venezuela’s energy authorities pointed out that U.S. benchmark West Texas Intermediate (WTI) averaged 16.61 dollars a barrel last week, 21 cents up from the previous week. The average price for the year stands at 13.51 dollars, compared to 14.40 dollars in 1998 and 20.56 dollars in 1997.

The OPEC basket sold at 14.47 dollars, a rise of 35 cents, which brought this year’s average to 11.51 dollars. The price averaged 12.33 dollars in 1998 and 18.68 in 1997.

Venezuela’s export cocktail, meanwhile, rose to 13.09 dollars last week, a 14-cent rise, which brought the year’s average to 10.11 dollars, compared to 1998’s 10.57 and 1997’s 16.32 dollars.

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