Oil weakens as Iraq war winds down, eyes OPEC

Oil weakens as Iraq war winds down, eyes OPEC

Barbara Lewis, Reuters, London

Oil prices weakened on Tuesday while traders weighed a
possible reduction in OPEC production against an eventual
resumption of Iraqi crude flows as the U.S.-led war in Iraq drew
to a close.

U.S. light crude on Tuesday was down 13 U.S. cents at US$28.50
a barrel, while London's Brent crude lost 23 U.S. cents to $24.76
a barrel.

Consumer nations remain concerned about low oil stocks, but
traders and analysts believe OPEC, fearing a potential price
collapse in the second quarter as demand tails off after winter,
will act to curb supplies.

At its April 24 gathering, OPEC is expected at least to erase
excess supplies of some two million barrels per day (bpd) being
pumped above formal output limits of 24.5 million bpd and it
could also consider reducing those quota limits.

The winding down of the war in Iraq with its oil
infrastructure largely intact has meanwhile raised speculation
that crude exports from the Gulf producer could resume in the
foreseeable future.

But administrative and legal issues might delay the arrival of
physical barrels to the market.

"The war to oust Saddam Hussein's regime has become a somewhat
less-than-critical matter to oil market interests, owing to the
lack of devastation and securing of Iraq's oil infrastructure,"
wrote Merrill Lynch's Mike Rothman in a daily note.

"With respect to the resumption of exports, it appears that we
may be at least two months away from oil sales commencing owing
largely to administrative and legal issues as opposed to physical
limitations, in our estimation."

Iraq exported about 1.7 million bpd of its daily output of
roughly 2.5 million barrels before the war to oust Saddam.

The International Energy Agency (IEA), which acts as a
watchdog for 26 industrialized nations on energy issues, warned
producers last week that any cut to supplies would be imprudent
for now despite a backlog of OPEC oil on the water waiting to hit
consumer shores.

Crude inventories in the United States, the world's biggest
oil user, this year have been running at a big deficit to 2002
levels and close to 270 million barrels, which the government
considers the minimum needed to keep the nation's refineries
operating smoothly.

Stocks of gasoline are also lower than at the same time in
2002, prompting some analysts to express fear that if refiners do
not start to replenish tanks soon, there could be a supply crunch
when motor fuel is in peak demand in the summer.

The U.S. government's Energy Information Administration (EIA)
will release its weekly report on the health of U.S. fuel stocks
on Wednesday.

Traders closely monitor EIA data for a snapshot of overall
demand for oil.

Six analysts polled by Reuters predicted crude stocks would
have grown by 2.5 million barrels in the week to April 11, with
gasoline inventories rising 1.55 million barrels.