Economy & Trade, Global, Global Geopolitics, Headlines

PETROLEUM: Prices Sky High on Iraq War Anniversary

Humberto Márquez

CARACAS, Mar 19 2004 (IPS) - A year after the U.S.-led invasion of Iraq, petroleum prices on the New York and London exchanges are at their highest point since the 1991 Gulf War.

Industry observers say that one of the aims of the Iraq war has been to dismantle the manoeuvring capacity of the Organisation of Petroleum Exporting Countries (OPEC) by taking control of Iraq’s rich oil fields.

But the cartel nonetheless has managed to shore up international oil prices and its revenues.

When it was announced Thursday that Pakistani troops had closed in on the second in command of the radical Islamic network al-Qaeda, Ayman al-Zawahiri, prices slid, due to an expectation of greater security in the region, but on Friday they began climbing again.

The benchmark light U.S. crude West Texas Intermediate (WTI) gained 37 cents on the dollar per barrel on Friday, selling on the New York exchange at 38.30 dollars – its highest level since the 1991 Gulf War.

Brent, the North Sea reference crude, rose 14 cents per 159-litre barrel, to 33.27 dollars, an increase of five percent in a week.

OPEC’s basket of seven reference crudes sold this week for 32.66 dollars a barrel, 55 cents more than the previous week, reported the Energy Ministry of Venezuela, a member of the cartel alongside Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia and United Arab Emirates.

Since 2002, OPEC has worked at maintaining the prices for its reference crudes, trying to keep them within the range of 22 to 28 dollars per barrel. The members had agreed to reduce output if the market becomes flooded and prices fall, and to increase production if demand increases and prices remain above price-band maximum for more than 20 consecutive days.

But prices have been higher than 28 dollars per barrel since December, and OPEC has refused to increase oil production. On the contrary, it has reduced output and is preparing for another cut in April.

This policy limits the reconstitution of oil reserves in the leading industrialised consumer countries, and drives up demand on the refineries, which pushes prices upwards – something the individual consumer is seeing at the gas pump.

In mid-March, the average retail gasoline price in the United States was 1.73 dollars a gallon (3.8 litres), 30 cents more than when the invasion of Iraq began a year ago.

The members of OPEC, which covers more than one-third of the global demand of 79 million barrels of oil a day, are debating whether at their Mar. 31 meeting in Vienna they will maintain the decision taken in February: to cut back daily output by one million barrels.

The organisation predicted in its latest market report that daily global demand in this year’s second quarter will fall to 77.8 million barrels, once the northern hemisphere spring gets under way, compared to the demand for 80.1 million barrels a day in the current quarter.

This panorama is heating up debate within OPEC about whether to cut back production even further, or to maintain or even increase output so that the high oil prices do not discourage industrial activity and depress demand for fossil fuels in the industrialised North.

“The current oil prices will not be a benefit to the world. We are concerned about that,” said OPEC president and Indonesian energy minister Purnomo Yusgiantoro.

His Venezuelan counterpart, Rafael Ramírez, reiterated on Friday, “We are committed to maintaining the price of oil at fair levels. At the Mar. 31 meeting we will continue with that approach. If it is necessary that Venezuela supports another cut, we will do so.”

He noted that today’s prices translate into dollar revenues that are depreciated with respect to other currencies, which is why Caracas is looking at the possibility of reconsidering the 22-to-28-dollar price range agreed by the cartel.

Nigeria has reportedly expressed support for the Venezuelan suggestion that the maximum in the price band could be higher.

OPEC, excluding Iraq, officially produces 24.5 million barrels of crude a day. Before adopting a new cut in April it has tried to bring its members into line with their quotas, halting over-production beyond each country’s agreed limit.

This overproduction is estimated to reach 1.3 million barrels a day amongst the cartel’s members.