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Dear all Two articles from BBC Online and from an energy industry website accessed via FT.com BBC report says of the prospects for the UK/US resolution 'Most likely, the outcome will be less definitive and the response impossible to call.' Energy24 says, 'While it is not yet clear if the Russians are opposed to plan because a lack of technical detail, or if Moscow is opposed to the proposal under any circumstances, the smart sanctions increasingly look dead in the water.' Either way, OPEC is not hurrying to fill in the Iraqi suspension gap, are pointing to the fact that suspension has not affected prices much (confirming their claim price increases more to do with refinery bottlenecks than undersupply), and are watching to see what (a) Iraq does and (b) what non-OPEC suppliers do before making any big production decisions. 1) BBC News Online Opec members harden against output rise By Toby Shelley Published: June 26 2001 11:45GMT | Last Updated: June 26 2001 19:59GMT http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT339 BFLFOC&live=true&tagid=YYY9BSINKTM&useoverridetemplate=IXL ZHNNP94C Opinion within the Organisation of Petroleum Exporting Countries is hardening against raising output when ministers convene for an extraordinary meeting next week. Officials at the Opec secretariat and sources close to three large Opec producers, told the Financial Times that market fundamentals had not changed enough over the last month to warrant higher production. On June 5, Opec members decided to maintain the production ceiling of 10 members at 24.2m b/d, rather than respond immediately to Iraq's suspension of its 2.1m b/d exports in furtherance of its dispute over US-UK 'smart sanction' proposals. They agreed to reassess market conditions on July 3-4 and vowed to pump extra oil if it was needed. Almost a month on, Iraqi exports through the Turkish port of Ceyhan and Mina al Bakr in the Gulf remain suspended with no-one prepared to forecast when they will resume. The UN Security Council is due to vote on the proposals on June 3, hours after Opec ministers are due to convene in Vienna. Russia may well reject the proposals but it is unclear whether a stalemate could provide the conditions for a restart of exports. Despite some 3 per cent of global oil production being withdrawn suddenly from the market just ahead of the stockbuilding season and amid a concatenation of energy crises in the US, crude oil prices have not soared. Indeed, the daily price of Opec's reference basket of seven crudes has fallen back from the $27 a barrel area to the $25 area in recent days, right in the middle of Opec's target range. Maintenance of prices in that range is crucial to consensus within Opec and it also allows the cartel to boast that it is imposing stability on a market capable of great volatility, to the benefit of all. The potential problem, said an official of a Gulf Arab national oil company, is two-fold. Firstly, "When the market is low, Opec is proactive but when prices are higher, it is reactive". Secondly, he said, the mechanism Opec uses to assess whether prices are exceeding its range - the Opec basket over 20 trading days - is backward looking while the danger lies ahead. "There is plenty of supply in the market" said a senior source with one Gulf Opec country, adding that stock builds in the US have been stronger than expected. "Market fundamentals are looser" said an adviser to the national oil company of another large Opec producer. Analysts in Opec countries are also sceptical of forecasts of a severe tightening of supply in the fourth quarter, saying stocks have been stronger and demand will be weaker than seen by, for example, the Centre for Global Energy Studies (CGES). One source who personally favours raising the ceiling by 1m-1.5m b/d now, nonetheless believes indications that the US downturn will be longer lasting than earlier thought, to militate against such a move next week. Dr Shokri Ghanem, director of Opec's research division, is categoric. The removal of Iraqi crude from the market with no accompanying crude price surge proves Opec's argument that high energy prices, particularly in the US are caused by refinery and pipeline bottlenecks, not lack of oil. He also undercuts the detailed arguments over the levels of stocks. Global commercial and strategic stocks amount to 5.7bn barrels yet the market moves on changes of a few tens of millions of barrels in the US due to speculation, he said. "One hundred million barrels is not a matter of concern." Running down of stocks is a policy decision not a reflection of supplies, he argued, pointing to the move by oil consumers towards just-in-time delivery in the mid-1990s. He added: "If stocks fall by 8 per cent or 10 per cent, I will worry". All this said, no-one disputes that a prolonged Iraqi absence from the market would squeeze supplies and boost prices in the absence of extra production by the other 10 Opec members. But Opec has given the assurance it will compensate for any shortfall that imbalances the market. The open questions would be ones of quantity and timing. If they have to make up for Iraq, other Opec member will first want to assess how much of shortfall has already been countered by non-Opec producers and, indeed, through quota busting by members. It is the issue of timing that is contentious, said one Opec source. It is far from certain that Iraq's intentions will be clear by the time ministers leave Vienna. A UN reversion to the original oil-for-food programme for a standard six month period would ensure a restart but would look like a defeat for the US and UK. Proceeding with the proposed 'smart sanctions' would guarantee continued suspension for an unknown period. Most likely, the outcome will be less definitive and the response impossible to call. That, says one Opec source, means a likely outcome of next week's meeting would be a decision touse the pricing mechanism as trigger for increased production of, perhaps, 1m b/d. For those, like CGES, who forecast market tightening in the fourth quarter without higher Opec output even before Iraq suspended exports, delaying a production rise until the Opec basket had exceeded $28 a barrel for 20 trading days would be too little, too late, bringing a return to Brent crude prices of $30 and higher. 2) ENERGY24 business information website http://www.energy24.org/Source/news/analysis/analysisarticle.asp?new s_id=237777 LONDON: ALL EYES ON UN AS RUSSIA BLACK-BALLS SANCTIONS PLAN 26/06/2001 13:27:20 (GMT) Crude prices pushed slightly higher as the market geared itself for the prospect that OPEC may leave production levels unchanged until September. IPE Brent for August delivery opened today on $27.03 before pushing thirteen cents higher by early afternoon. But the real market shaping news was whether Iraq was prepared to resume its crude exports, with events overnight suggesting Baghdad maybe inching closer toward a resumption. Russian has told its partners on the UN Security Council that it would oppose the 'smart sanctions', while US Secretary of State Collin Powell admitted that consensus has not yet been reached and there was no plan B in place. While it is not yet clear if the Russians are opposed to plan because a lack of technical detail, or if Moscow is opposed to the proposal under any circumstances, the smart sanctions increasingly look dead in the water. So where does all this leave OPEC and its supplies? Observers now say the cartel is unlikely to move on output before September and this has been echoed by reports that individual oil ministers within OPEC are digging their heels in to resist calls for a production increase. Lawrence Eagles of GNI Research said if OPEC does leave output untouched, it may not cause too many ripples in the wider market. 'Given the current supply and demand balance, this does not appear likely to cause significant tightness in the oil market. Certainly consumers will have more oil under an Iraqi return than they will if the cartel fills the void,' he said. Sorry about the formatting. Milan Rai Joint Coordinator, Voices in the Wilderness UK email@example.com 29 Gensing Road, St Leonards on Sea East Sussex UK TN38 0HE Phone/fax 0845 458 9571 local rate within UK Phone/fax 44 1424 428 792 from outside UK Pager 07623 746 462 Voices website http://viwuk.freeserve.co.uk -- ----------------------------------------------------------------------- This is a discussion list run by the Campaign Against Sanctions on Iraq For removal from list, email firstname.lastname@example.org Full details of CASI's various lists can be found on the CASI website: http://www.casi.org.uk