Iraq Oil Exports Start to Dry Up,
But Crude Futures Continue Fall
Extra Shipments From Other Exporters,
Hopes for Emergency Stocks Hurt Prices
By BHUSHAN BAHREE and CHIP CUMMINS
Staff Reporters of THE WALL STREET JOURNAL
In a widely anticipated prelude to war, Iraq's oil exports have begun to dry up, as buyers, shippers and insurers shy away from lifting oil from the Persian Gulf port of Mina al-Bakr, one of Baghdad's two main export outlets.
But oil prices were continuing to fall Tuesday, as futures markets on both sides of the Atlantic counted millions of barrels of extra oil being shipped by other major exporters and priced in the prospect of even more supplies coming from strategic stocks held by governments.
On the New York Mercantile Exchange, the benchmark sweet, light crude for April delivery fell more than $3 to $31.75 a barrel. On London's International Petroleum Exchange, North Sea benchmark Brent crude lost $3.08 a barrel to hit a three-month low of $26.40.
"The Saudis are putting a lot of oil out," said Lawrence Goldstein, president of the Petroleum Industry Research Foundation, New York, Monday. "We're going to see a visible replenishment of inventories in the next several weeks."
According to Lloyds Marine Intelligence Unit, which tracks oil shipments, about 20 million barrels a day of crude oil was passing out of the Strait of Hormuz in the Persian Gulf on its way to world markets in the week ended March 2. That was up from 15.1 million barrels a day in February, and 14.2 million barrels a day in January. Oil shipped from the Gulf takes about 45 days to reach the U.S.
To be sure, some of the increased shipments are meant to offset supplies lost earlier this year because of a political crisis in Venezuela that sharply curtailed oil exports from that country for a prolonged period. But some of the extra supplies are also seen as precautionary moves by Saudi Arabia and others in the Organization of Petroleum Exporting Countries to cushion the impact of an expected loss of Iraqi supplies of some two million barrels a day in the event of war.
Indeed, some oil traders have begun focusing on the prospect of too much oil if a war in Iraq doesn't disrupt supplies from elsewhere. "The driver today is the immediate introduction of prompt oil" from strategic stocks, notably those held by the U.S., said Peter Gignoux, manager of the oil desk at Schroder Salomon Smith Barney in London. Mr. Gignoux and others cited a statement by Billy Tauzin, chairman of the House Energy and Commerce Committee, that the U.S. Strategic Petroleum Reserve, which has some 600 million barrels, was primed for the release of oil.
But it remains too early to conclude that markets will dodge a supply crunch. Oil-industry officials said buyers had stopped contracting oil for loading at Iraq's Persian Gulf port of Mina al-Bakr, which is adjacent to Kuwait and is close to what is expected to be a war zone. Oil buyers said Iraqi exports from the Turkish port of Ceyhan on the Mediterranean were continuing, with tankers scheduled to load.
According to the United Nations, which regulates Iraqi oil exports, Iraq exported 10 million barrels of oil in the week ended March 7, an average of 1.43 million barrels a day. That compared with an average of 1.73 million barrels a day in February. Shipments from Mina al-Bakr accounted for about two-thirds of the most recent tally.
Legal exports from Mina al-Bakr are expected to cease completely, now that U.N. Secretary General Kofi Annan has ordered all inspectors, including those involved in the oil-for-food program, to leave. It is unclear how long exports of Iraqi oil from Ceyhan will continue.
Meanwhile, many traders remain on edge. They recall how Nymex crude-oil futures set a record high of $41.15 in the months before the 1991 Gulf War only to plunge nearly $11 the morning after the air campaign began. The crash came after the U.S. said it would release oil from the nation's Strategic Petroleum Reserve, and the war seemed to be going in the allies' favor.
"People are afraid of a similar type of situation, where they walk in one day, and the market's down sharply," said Tom Bentz, an energy analyst at brokerage BNP Paribas Futures.
Even if a conflict turns out to be quick, global oil inventories are much tighter than they were at the onset of the first Gulf War. That, in itself, should keep oil prices well above $30 a barrel this year, according to the Department of Energy's latest forecast.
In other commodity markets Monday:
COFFEE: Arabica coffee futures sank to six-and-a-half-month low on the Coffee, Sugar and Cocoa Exchange, pummeled by selling from speculative funds and local floor traders. The market remains burdened by heavy supplies after a large harvest in Brazil. The May contract dropped 2.15 cents to 57.55 cents a pound.
SOYBEANS: Chicago Board of Trade futures fell in slow trading, with forecasts of rain for the developing U.S. crop improving the prospects for production. The May future fell 6.25 cents to $5.6825 a bushel.
-- Masood Farivar of Dow Jones Newswires contributed to this article.
Write to Bhushan Bahree at bhushan.bahree@wsj.com and Chip Cummins at chip.cummins@wsj.com
Updated March 18, 2003 6:59 a.m.
But Crude Futures Continue Fall
Extra Shipments From Other Exporters,
Hopes for Emergency Stocks Hurt Prices
By BHUSHAN BAHREE and CHIP CUMMINS
Staff Reporters of THE WALL STREET JOURNAL
In a widely anticipated prelude to war, Iraq's oil exports have begun to dry up, as buyers, shippers and insurers shy away from lifting oil from the Persian Gulf port of Mina al-Bakr, one of Baghdad's two main export outlets.
But oil prices were continuing to fall Tuesday, as futures markets on both sides of the Atlantic counted millions of barrels of extra oil being shipped by other major exporters and priced in the prospect of even more supplies coming from strategic stocks held by governments.
On the New York Mercantile Exchange, the benchmark sweet, light crude for April delivery fell more than $3 to $31.75 a barrel. On London's International Petroleum Exchange, North Sea benchmark Brent crude lost $3.08 a barrel to hit a three-month low of $26.40.
"The Saudis are putting a lot of oil out," said Lawrence Goldstein, president of the Petroleum Industry Research Foundation, New York, Monday. "We're going to see a visible replenishment of inventories in the next several weeks."
According to Lloyds Marine Intelligence Unit, which tracks oil shipments, about 20 million barrels a day of crude oil was passing out of the Strait of Hormuz in the Persian Gulf on its way to world markets in the week ended March 2. That was up from 15.1 million barrels a day in February, and 14.2 million barrels a day in January. Oil shipped from the Gulf takes about 45 days to reach the U.S.
To be sure, some of the increased shipments are meant to offset supplies lost earlier this year because of a political crisis in Venezuela that sharply curtailed oil exports from that country for a prolonged period. But some of the extra supplies are also seen as precautionary moves by Saudi Arabia and others in the Organization of Petroleum Exporting Countries to cushion the impact of an expected loss of Iraqi supplies of some two million barrels a day in the event of war.
Indeed, some oil traders have begun focusing on the prospect of too much oil if a war in Iraq doesn't disrupt supplies from elsewhere. "The driver today is the immediate introduction of prompt oil" from strategic stocks, notably those held by the U.S., said Peter Gignoux, manager of the oil desk at Schroder Salomon Smith Barney in London. Mr. Gignoux and others cited a statement by Billy Tauzin, chairman of the House Energy and Commerce Committee, that the U.S. Strategic Petroleum Reserve, which has some 600 million barrels, was primed for the release of oil.
But it remains too early to conclude that markets will dodge a supply crunch. Oil-industry officials said buyers had stopped contracting oil for loading at Iraq's Persian Gulf port of Mina al-Bakr, which is adjacent to Kuwait and is close to what is expected to be a war zone. Oil buyers said Iraqi exports from the Turkish port of Ceyhan on the Mediterranean were continuing, with tankers scheduled to load.
According to the United Nations, which regulates Iraqi oil exports, Iraq exported 10 million barrels of oil in the week ended March 7, an average of 1.43 million barrels a day. That compared with an average of 1.73 million barrels a day in February. Shipments from Mina al-Bakr accounted for about two-thirds of the most recent tally.
Legal exports from Mina al-Bakr are expected to cease completely, now that U.N. Secretary General Kofi Annan has ordered all inspectors, including those involved in the oil-for-food program, to leave. It is unclear how long exports of Iraqi oil from Ceyhan will continue.
Meanwhile, many traders remain on edge. They recall how Nymex crude-oil futures set a record high of $41.15 in the months before the 1991 Gulf War only to plunge nearly $11 the morning after the air campaign began. The crash came after the U.S. said it would release oil from the nation's Strategic Petroleum Reserve, and the war seemed to be going in the allies' favor.
"People are afraid of a similar type of situation, where they walk in one day, and the market's down sharply," said Tom Bentz, an energy analyst at brokerage BNP Paribas Futures.
Even if a conflict turns out to be quick, global oil inventories are much tighter than they were at the onset of the first Gulf War. That, in itself, should keep oil prices well above $30 a barrel this year, according to the Department of Energy's latest forecast.
In other commodity markets Monday:
COFFEE: Arabica coffee futures sank to six-and-a-half-month low on the Coffee, Sugar and Cocoa Exchange, pummeled by selling from speculative funds and local floor traders. The market remains burdened by heavy supplies after a large harvest in Brazil. The May contract dropped 2.15 cents to 57.55 cents a pound.
SOYBEANS: Chicago Board of Trade futures fell in slow trading, with forecasts of rain for the developing U.S. crop improving the prospects for production. The May future fell 6.25 cents to $5.6825 a bushel.
-- Masood Farivar of Dow Jones Newswires contributed to this article.
Write to Bhushan Bahree at bhushan.bahree@wsj.com and Chip Cummins at chip.cummins@wsj.com
Updated March 18, 2003 6:59 a.m.
