Skip to comments.OPEC agrees to keep taps open to cool oil prices
Posted on 03/08/2006 9:56:13 AM PST by sully777
VIENNA (Reuters) - OPEC said on Wednesday it will keep oil output close to the limit to bring prices within consumers' comfort zone and fill supply gaps, but a threat by Iran to review its oil exports cast a shadow.
Iran issued its warning at the United Nations' International Atomic Energy Agency even as the nation's oil minister sat down across town with OPEC colleagues to discuss output, export disruptions in Nigeria and Iraq and prices above $60 a barrel.
Oil Minister Kazem Vaziri struck a softer note, saying: "We have no intention of reducing any of our exports."
OPEC President Edmund Daukoru confirmed there will be no change to the group's 28 million barrels per day ceiling, in place since July 2005, despite forecasts for lower demand in spring. OPEC, which pumps over a third of the world's oil, has made a commitment to ensure ample supplies.
"If we send completely the wrong signal prices could get out of control, so we have chosen a roll over," Daukoru, who is also Nigeria's oil minister, said.
At the Vienna-based IAEA the tone hardened in talks over Iran's uranium enrichment work.
Javad Vaeedi, deputy secretary of Iran's Supreme National Security Council, said Iran would have to review its oil policies if world pressure grew. Iran also said it was capable of inflicting "harm and pain" on the United States.
Oil consumers have not felt this vulnerable for decades.
Rebel attacks have cut exports from the world's eighth biggest supplier Nigeria by 11 million barrels since the start of the year. Fellow OPEC member Iraq is in crisis and oil prices are at their highest level in real terms for 25 years.
Supply and demand numbers tell a different story.
OPEC's economists forecast world oil demand will slow in the second quarter. Iran is struggling to sell its hard-to-refine high sulphur crude and top exporter Saudi Arabia has kept output flat since May 2004 in response to its customer needs.
Qatari Oil Minister Abdullah al-Attiyah has said he is very concerned at high oil stocks in consumer countries.
On Wednesday, U.S. inventory data highlighted OPEC's dilemma -- crude oil stocks in the world's biggest consumer shot to the highest level in nearly seven years last week. The news sent U.S. crude oil below $60 for the first time since February 23.
Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah said OPEC had been working to bring U.S. crude below $60. He believed there was no need for the organization to cut output all year.
But some analysts are looking with concern to the peak winter season, fearing OPEC, which accounts for over half of the world's oil exports, may struggle to pump enough.
"If demand continues to be strong we are going to be struggling," said Yasser Elguindi, senior managing director at Medley Global Advisors. "OPEC appears to be taking the view that the risks are weighted more to the upside than the downside."
Kuwait's Sheikh Ahmad forecast non-OPEC producers like Russia and Angola would pick up the slack.
Demand from the United States, consumer of a quarter of the world's oil, and China has been the main driver in a rally that has seen prices double in the past two years.
So far the world economy has coped but analysts say an upward shift of $10 a barrel for about two years would begin to bite, driving inflation about 0.25 percent a year higher and paring growth by the same amount.
OPEC confirmed June 1 as the date of its next ministerial meeting in Caracas.
(Additional reporting by Simon Webb and Ghaida Ghantous)
Iran will fold before the rest of the world if they start holding back on oil.
What else are they going to export? Sand?
The Iran threat is real but they could not produce an actual shortage even if they stopped their own oil production completely. If they blockade the Strait of Hormuz it will be a new game.
The rest of them understand what is going to happen and know that the supply will be cut anyway when Iran starts to smoke soon.
They have the mahdi thing going, beside which oil or any other worldly commodity is not a consideration.
Most of the action would be over in a few hours. However, the tankers will not travel the Strait until all threat is eliminated, and that would require surrender by Iran. It won't be a matter of a few hours: oil shipments could be interrupted for a month.
The Tanker War, 1984-87 (Price per barrel went from $53 in 1982 to approx. $18 in 1987)
Much of Iraq's export capability was lost during the Iran-Iraq War, either to war-related damage or due to political reasons. In 1982, for instance, Syria (allied with Iran at the time) closed the 500-mile, 650,000-bbl/d-capacity Banias pipeline, which had been a vital Iraqi access route to the Mediterranean Sea and European oil markets. By 1983, Iraq's export capabilities were only 700,000 bbl/d, or less than 30% of operable field production capacity at that time.
Iran's revenue share fell after the 1978/79 Iranian Revolution, followed soon thereafter by the Iran-Iraq War for much of the 1980s [and has not recovered since]. All Iranian onshore crude oil production and output from the Forozan field (which is blended with crude streams from the Abuzar and Doroud fields) is exported from the Kharg Island terminal located in the northern Gulf. The terminal's original capacity of 7 million bbl/d was nearly eliminated by more than 9,000 bombing raids during the Iran-Iraq War.
The tanker war seemed likely to precipitate a major international incident for two reasons. First, some 70 percent of Japanese, 50 percent of West European, and 7 percent of American oil imports came from the Persian Gulf in the early 1980s. Second, the assault on tankers involved neutral shipping as well as ships of the belligerent states.
The tanker war had two phases. The relatively obscure first phase began in 1981, and the well-publicized second phase began in 1984.
The relatively obscure first phase began in 1981, and the well-publicized second phase began in 1984. As early as May 1981, Baghdad had unilaterally declared a war zone and had officially warned all ships heading to or returning from Iranian ports in the northern zone of the Gulf to stay away or, if they entered, to proceed at their own risk. The main targets in this phase were the ports of Bandar-e Khomeini and Bandar-e Mashur; very few ships were hit outside this zone. Despite the proximity of these ports to Iraq, the Iraqi navy did not play an important role in the operations. Instead, Baghdad used Super Frelon helicopters equipped with Exocet missiles or Mirage F-1s and MiG-23s to hit its targets. Naval operations came to a halt, presumably because Iraq and Iran had lost many of their ships, by early 1981; the lull in the fighting lasted for two years.
In March 1984, the tanker war entered its second phase when Iraq initiated sustained naval operations in its self-declared 1,126-kilometer maritime exclusion zone, extending from the mouth of the Shatt al Arab to Iran's port of Bushehr. In 1981 Baghdad had attacked Iranian ports and oil complexes as well as neutral tankers and ships sailing to and from Iran; in 1984 Iraq expanded the so-called tanker war by using French Super-Etendard combat aircraft armed with Exocet missiles.
In March 1984 an Iraqi Super Etendard fired an Exocet missile at a Greek tanker south of Khark Island. Until the March assault, Iran had not intentionally attacked civilian ships in the Gulf.Neutral merchant ships became favorite targets, and the long-range Super-Etendards flew sorties farther south. Seventy-one merchant ships were attacked in 1984 alone, compared with forty-eight in the first three years of the war. Iraq's motives in increasing the tempo included a desire to break the stalemate, presumably by cutting off Iran's oil exports and by thus forcing Tehran to the negotiating table. Repeated Iraqi efforts failed to put Iran's main oil exporting terminal at Khark Island out of commission, however.
The new wave of Iraqi assaults, however, led Iran to reciprocate. In April 1984, Tehran launched its first attack against civilian commercial shipping by shelling an Indian freighter. Iran attacked a Kuwaiti oil tanker near Bahrain on May 13 and then a Saudi tanker in Saudi waters five days later, making it clear that if Iraq continued to interfere with Iran's shipping, no Gulf state would be safe. Most observers considered that Iraqi attacks, however, outnumbered Iranian assaults by three to one. Iran's retaliatory attacks were largely ineffective because a limited number of aircraft equipped with long-range antiship missiles and ships with long-range surface-to-surface missiles were deployed. Moreover, despite repeated Iranian threats to close the Strait of Hormuz, Iran itself depended on the sea-lanes for vital oil exports.
These sustained attacks cut Iranian oil exports in half, reduced shipping in the Gulf by 25 percent, led Lloyd's of London to increase its insurance rates on tankers, and slowed Gulf oil supplies to the rest of the world; moreover, the Saudi decision in 1984 to shoot down an Iranian Phantom jet intruding in Saudi territorial waters played an important role in ending both belligerents' attempts to internationalize the tanker war. Iraq and Iran accepted a 1984 UN-sponsored moratorium on the shelling of civilian targets, and Tehran later proposed an extension of the moratorium to include Gulf shipping, a proposal the Iraqis rejected unless it were to included their own Gulf ports.
Iraq began ignoring the moratorium soon after it went into effect and stepped up its air raids on tankers serving Iran and Iranian oil-exporting facilities in 1986 and 1987, attacking even vessels that belonged to the conservative Arab states of the Persian Gulf. Iran responded by escalating its attacks on shipping serving Arab ports in the Gulf. As Kuwaiti vessels made up a large portion of the targets in these retaliatory raids, the Kuwaiti government sought protection from the international community in the fall of 1986. The Soviet Union responded first, agreeing to charter several Soviet tankers to Kuwait in early 1987. Washington, which has been approached first by Kuwait and which had postponed its decision, eventually followed Moscow's lead. United States involvement was sealed by the May 17, 1987, Iraqi missile attack on the USS Stark, in which thirtyseven crew members were killed. Baghdad apologized and claimed that the attack was a mistake. Ironically, Washington used the Stark incident to blame Iran for escalating the war and sent its own ships to the Gulf to escort eleven Kuwaiti tankers that were "reflagged" with the American flag and had American crews. Iran refrained from attacking the United States naval force directly, but it used various forms of harassment, including mines, hit-and-run attacks by small patrol boats, and periodic stop-and-search operations. On several occasions, Tehran fired its Chinese-made Silkworm missiles on Kuwait from Al Faw Peninsula. When Iranian forces hit the reflagged tanker Sea Isle City in October 1987, Washington retaliated by destroying an oil platform in the Rostam field and by using the United States Navy's Sea, Air, and Land (SEAL) commandos to blow up a second one nearby.
Within a few weeks of the Stark incident, Iraq resumed its raids on tankers but moved its attacks farther south, near the Strait of Hormuz. Washington played a central role in framing UN Security Council Resolution 598 on the Gulf war, passed unanimously on July 20; Western attempts to isolate Iran were frustrated, however, when Tehran rejected the resolution because it did not meet its requirement that Iraq should be punished for initiating the conflict.
In early 1988, the Gulf was a crowded theater of operations. At least ten Western navies and eight regional navies were patrolling the area, the site of weekly incidents in which merchant vessels were crippled. The Arab Ship Repair Yard in Bahrain and its counterpart in Dubayy, United Arab Emirates (UAE), were unable to keep up with the repairs needed by the ships damaged in these attacks.
Jveritas, weren't you insisting that if the ports deal didn't go through that the Emir in a hissy fit would close the spigots and all of OPEC would join in in sympathy ?
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