Saddam's capture only fleetingly felt on oil market

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Last updated at: (Beijing Time) Thursday, December 18, 2003

Saddam's capture only fleetingly felt on oil market

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Oil prices dropped on Monday after the capture of former Iraqi leader Saddam Hussein, but the situation did not last long after two car bombs exploded at police stations in Baghdad, killing nine people.

Tuesday's data from the Organization of Petroleum Exporting Countries (OPEC) showed the average oil prices in seven OPEC markets amounted to 30.04 US dollars per barrel, the first time it had reached 30 dollars per barrel since the US-led war against Iraq began on March 20.

On Monday, oil prices on the New York Mercantile Exchange and other international crude markets dropped sharply in opening trade, but increased again after the two car bombs in Baghdad.

Some market analysts said the car bombings meant the sabotage attacks on Iraq's oil infrastructure would not be ended, and the influence of Saddam's capture had reduced.

Iraqi Oil Minister Ibrahim Bahr al-Uloum said in an interview that the capture would improve the security situation in Iraq, but "we cannot eliminate possible attacks on oil pipelines in the future."

The week-long price hike was attributed to not just the cold weather which boosted heating oil demand in the United States and the fear of decline in the country's fuel stocks, but also because of the unclear situation of oil production in Iraq.

Since early this year, oil prices in OPEC trading were maintained at 22 dollars to 28 dollars per barrel. At that time the political situation in Iraq and the process of oil restoration affected not only oil prices on the international market, but also production policy worked out by oil ministers of OPEC member countries.

From February to March this year, the single-day OPEC oil price created record highs, compared with others over the recent two years, repeatedly reaching 33.11 dollars a barrel on March 10, because of the effects of the approaching US military attack on Iraq. Subsequently, the price began to come down, falling to 30 dollars in March 17.

Iraq's oil throughput recovered slowly, which frustrated market confidence, due to continual sabotage attacks on its oil infrastructure in the war. Since the war on Iraq broke out, oil prices have kept soaring, and reaching a summit following the capture of Saddam.

In optimistic anticipation of Iraqi crude production, OPEC ministers of oil made decisions to keep or cut the oil output quotas, resulting in the maintenance of high oil prices. Judging from the outcomes of the OPEC Council of Ministers in Dec. 4, OPEC intends to keep high oil prices at least until the first half of next year.

Analysts pointed out that amid the continuously increasing need for crude, the future of the world oil market over a long period will depend on non-OPEC countries' output, OPEC members' production policy, output recovery in Iraq and the political situation in oil-producing countries.

Russia, which has been criticizing OPEC's high oil price, increased its output by 7.7 percent, 9.1 percent and 11 percent during the past three years and became the fastest developing oil-producing country. Though OPEC could cope with this by cut quotas, it had to pay the cost of losing market share.

Iraq used to play an important role in OPEC because of its founder status. But now Iraq's oil exports could not reach 1.5 million barrels per day because of pipeline destruction in the northern area. The world market will be eased and oil price would fall if Iraq came back earlier.

Iraq will continue to play an important role in the world oil market, and it's reasonable to expect that its political situation will be improved soon after the capture of Saddam.

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