Oil prices firm as tension in the Gulf increasing

Oil prices firm as tension in the Gulf increasing

LONDON (Reuter): Oil prices gained some 30 U.S. cents a barrel yesterday as international markets reacted to the buildup of Iraqi troops along the border with Kuwait.

At midday, world benchmark Brent Blend crude stood 31 cents higher on futures markets at $17.23 a barrel for November delivery, scarcely moved from a firm opening at $17.25.

Initial reports on Iraqi troop movements on Friday propelled Brent prices up to a high of $17.32, but profit-taking ahead of the weekend wiped out most of those gains late on Friday.

Brokers noted prices were heading upwards before news of Iraqi's latest move broke.

"The market's pretty relaxed this morning," said one broker. "The (Iraqi) news would have had more impact if we'd been in a bearish market," he said.

Others noted that although the market's immediate reaction was bullish, prices were unlikely to gain any further upward impetus unless Kuwaiti oil supplies came under threat.

"There's been no threat to Kuwaiti or Saudi oil supplies so far and we've already seen what the allied forces can do back in 1990 when they faced a much stronger force," said one market analyst.

Oil prices briefly touched $40.00 during that crisis but tumbled to just $16.00 in early 1991 when it became clear that Iraq could not damage huge Saudi Arabian production capacity.

OPEC responded to the shortfall in output from Kuwait and Iraq by turning up the taps and adding more than a million barrels per day (bpd) in the fourth quarter 1990.

Observers believe there is little chance of any serious disruption now to Kuwait's two million bpd of crude output.

But brokers said Baghdad's unpredictability would continue to send jitters through the market.

"Although Kuwait's oil installations are well protected, it would only take one missile attack on a Kuwaiti refinery to send prices soaring," brokers GNI said in a market report.

Production

Meanwhile, the Middle East Economic Survey (MEES) estimated yesterday that OPEC went back over its output ceiling in September as the result of a recovery in Nigerian production.

The Cyprus-based newsletter put output by OPEC at 24.78 million bpd, compared with 24.45 million bpd in August -- the sole month this year that it went under its 24.52 million bpd ceiling.

A two-month oil strike in Nigeria had boosted the market at a time -- the northern summer -- when world demand was lower, though Nigerian oil exports did not suffer greatly.

MEES estimated Nigerian output to have risen by 350,000 bpd to 1.82 million and Iranian output to have climbed by 35,000 bpd to 3.615 million.

A Reuter survey had earlier estimated September output for the group at 24.93 million bpd, including Nigeria at 1.83 million and Iran at 3.62 million.