CRUDE oil prices yesterday regained their upward momentum after saboteurs knocked out Iraq’s export pipelines and exposed the limited spare capacity in the global oil supply system.
Brent crude rose 37 cents to $35.40, ending a recent downward drift in the oil price. The attacks in Iraq, which knocked out the northern and southern export routes, removed 1.5 million barrels per day of oil exports and revived concern about the shrinking margin between the world demand for fuel and the resources available for prompt supply.
Opec’s president, Purnomo Yusgiantoro, added to the anxiety about crude supplies yesterday when he urged non-Opec producers, such as Russia and Mexico, to increase output. His call for more crude was greeted with astonishment by officials in Moscow, who denied Russia had any spare capacity. Transneft, the Russian state pipeline company, recently gave warning that its export lines had reached their limit at four million barrels per day.
Sergei Oganesyan, a Moscow oil official, said: “We don’t have a tap that we can just turn on and off. We are producing exactly as much as we can.”
Opec’s decision earlier this month to increase supplies by two million barrels per day sent the crude price tumbling from a 21-year high in New York of $42 a barrel to $37. The Centre for Global Energy Studies (CGES) yesterday gave warning that a long shutdown of Iraqi exports could stretch supply lines.
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Leo Drollas, of CGES, said: “Spare capacity is 2.2 million barrels per day, but if we have to cover the lost Iraqi barrels for some period, that would leave us with just 700,000 bpd of spare capacity, which is very low.”
The futures market’s relatively subdued response to the Iraqi export shutdown reflects belief that refineries are currently well supplied with crude after recent action by Saudi Arabia.
Mr Drollas said: “We don’t disagree if all goes well (in repairing the Iraqi pipelines), but the situation may hot up as we approach the handover (of power in Iraq on June 30).”
Iraq has two export routes, a northern pipeline linking the oilfields near Kirkuk with the Turkish Mediterranean port of Ceyhan and pipelines from the southern oilfields to Iraq’s Gulf terminals at the port of Basra. Saboteurs yesterday blew a hole in a 48-inch diameter export pipe connecting the southern oilfields with Basra. It was the second attack on the southern export line in two days and came after an explosion on Tuesday that knocked out the Kirkuk line.
Production is expected to be restored within a week as repairs to a damaged pipe are relatively simple, provided that work can be done in safety, say experts. The greater worry is an attack on one of the Gulf terminals, which could suspend exports for months rather than days.
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Help from non-Opec producers is unlikely because the oil cartel is the only available source of immediate extra supply. Russia is currently rivalling Saudi Arabia as the world’s largest producer, pumping over nine million barrels per day. Russia’s output has increased sharply in recent years as a result of heavy investment by the country’s privatised oil companies, but exports are hampered by lack of investment in new pipelines and terminals, infrastructure that is controlled by Transneft, the state pipeline company.
The US is the second-largest producer, at 7.8 million barrels a day, but its output is in gradual decline. Weak oil inventory data from the US Energy Department in Washington added to bullish sentiment among oil traders.
The International Energy Agency reported a smaller than expected increase of 800,000 barrels in crude oil stocks last week while the American Petroleum Institute estimated the rise at just 482,000 barrels. The market had been expecting a strong inventory gain of two million barrels after the news that Saudi Arabia had been bumping up its crude exports during last month’s price surge.