Oil market astonished after UN-Iraq deal

Oil market astonished after UN-Iraq deal

LONDON (AFP): The oil market astonished the experts last week,
by surging after the announcement of a deal between Baghdad and
the United Nations which will allow Iraq to export oil for the
first time since it invaded Kuwait in August 1990.

All analysts had expected the deal to spark a fall in oil
prices because the market, which was already creaking under the
strain of over-production, would then be flooded with a wave of
Iraqi crude.

But Iraqi exports will not hit international markets for two
to three months, UN Secretary-General Boutros Boutros-Ghali has
said, and traders give more weight now to strong consumption of
oil around the world and a temporary "tightening" in supplies.

The oil-for-food deal between Baghdad and the United Nations
allowing limited sales of Iraqi crude to pay for humanitarian
supplies did not send prices crashing as expected, but instead,
actually the market a fillip.

On the London futures market, the reference price for Brent
crude (for delivery in July) did plunge immediately after the
deal was signed on Monday, to US$17 per barrel.

But soon after, oil prices began to surge, and climbed to over
$19.

Analysts had expected the deal to spark a fall in oil prices
of about $2 because the market, which was already creaking under
the strain of over-production, would then be flooded with a wave
of Iraqi crude.

Under UN resolution 986, Iraq will be allowed to export $2
billion worth of oil every six months, or about 700,000 barrels
per day, the first sale of Iraqi crude on the international
markets since a trade and oil embargo was slapped on Baghdad in
August 1990 after troops invaded Kuwait.

One London analyst explained the price rise as a temporary
"tightening" of the market, while another suggested that the
increase reflected increased consumption of oil around the world.

However, he said that the rise in crude prices would not last.
The next meeting of OPEC countries on June 5 in Vienna might call
for an increase in the export quotas of exporting countries, he
suggested, which would send prices into free-fall.

Current output by OPEC members is 1.5 million barrels per day
above their own export ceiling of 24.52 million barrels per day.
Members might be tempted to make this level of production
permanent.