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Analysts: Iraq years from being oil giant

By HIL ANDERSON, UPI Chief Energy Correspondent   |   April 9, 2003 at 6:32 PM   |   Comments

LOS ANGELES, April 9 (UPI) -- World oil prices were on the rise Wednesday as joyous Iraqis danced in celebration on the streets of Baghdad while oil traders looked ahead to a post-war tightening of world crude supplies.

May futures on the New York Mercantile Exchange settled 85 cents higher at $28.85 per barrel as OPEC appeared to be determined to cut its output in order to ease what it saw as a glut of oil on the world market.

At the same time, energy experts were telling a congressional committee that it would take several years for Iraq to become a major crude exporter and would probably never supplant Saudi Arabia as the primary player in the world oil market.

"Our estimate is that it would be 2-3 years and several billion dollars simply for Iraq to get back to where it was 1990, and perhaps $30 billion and 7-10 years to add another 2 1/2 million barrels a day," Daniel Yergin, head of Cambridge Energy Research Associates, told the Senate Foreign Relations Committee.

Yergin said Saudi Arabia continued to be the world's key producer both because of its huge reserves and its willingness to adjust production in order to maintain a stable price.

"We have right now in the world, whether we like it or not ... only one strategic supplier that is willing and able to hold substantial amounts of idle capacity and is willing and able to swing its own production radically to meet market demands, and that is Saudi Arabia," Yergin said. "Iraq one day, I think, can become a significant commercial supplier, along the lines of Russia and Norway."

Iraq holds the world's second-largest crude reserves behind Saudi Arabia and was pumping around 3.5 million barrels per day in 1990. After its ill-fated occupation of Kuwait, however, Iraqi production never topped 2.7 million barrels and its oil infrastructure has fallen into disrepair and its limited exports were eventually shut off by the current war.

Estimates are that crude will not be flowing from the southern oil fields until this summer, and the northern oil fields around Kirkuk remained in Iraqi hands Wednesday.

"The success of the war will soon lead to a slow increase in Iraqi production," Martha Brill Olcott, senior associate with the Carnegie Endowment for International Peace, told the Senate committee. "I think it would be a mistake to prematurely conclude that the war in Iraq has substantially changed calculations of U.S. energy security. The United States still uses more (oil) than we produce ... so this challenge is going to stay before us."

Oil markets weren't thinking in terms of years on Wednesday but rather looked ahead to summer and the impact that OPEC's expected production cuts will have on the U.S. gasoline supply.

Closely watched weekly inventory reports issued by the U.S. Energy Information Administration and American Petroleum Institute showed a 2.5 million to 3.5 million barrel drop in crude supplies along with an increase in gasoline supplies.

"This was the first (crude) decline after three consecutive weeks of inventory increases," the EIA said. "Gasoline inventories rose by 1.5 million barrels last week but are at the low end of the normal range."

U.S. refiners increased gasoline output during the past week in anticipation of the summer driving season, which should help keep pump prices lower. At the same time, however, OPEC was sending strong signals that the production increases ordered before the Iraq war were about to end.

OPEC has scheduled a meeting in Vienna on April 24, when it's expected to lower export quotas. The EIA has estimated the cuts will keep crude prices around the $28 per barrel level on NYMEX.

Meanwhile, it's unclear how OPEC will handle the pending return to full crude production by Iraq, a member nation that for the past 10 years has had its crude exports strictly limited under the U.N. oil-for-food program.

British officials said earlier in the month that it would likely take until June for the oilfields in the south of Iraq to be repaired and readied for production. At the same time, more than 8 million barrels of northern Iraqi crude valued at more than $200 million are being stored in Ceyhan, Turkey, where they could conceivably be loaded aboard tankers as soon as the United Nations gives the word.

Although Baghdad was largely under U.S. control on Wednesday, Saddam Hussein loyalists still held the northern oil fields around Kirkuk, which prompted a warning from Defense Secretary Donald Rumsfeld that the wells could possibly be wired for demolition.

American paratroopers in the north have been reinforced by newly arrived armor from the 1st Infantry Division and were getting into position to hit the Iraqis and possibly move on the oilfields around Kirkuk, it was reported Wednesday. The Philadelphia Inquirer reported that military officials hoped to seize the northern wells before they fell to Kurdish irregulars.

© 2003 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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