Mideast conflict driving prices, not crude shortage: OPEC sec gen

Mideast conflict driving prices, not crude shortage: OPEC sec gen

Paris (Platts)--18Jul2006

Record high oil prices are being driven by an escalation of violence in
the Middle East, triggering concerns about stability in the region, and not a
shortage of supply, OPEC's secretary general Mohammed Barkindo said Tuesday.
"It has nothing to do with supply, it is the fear factor and the unstable
situation in that region that is currently driving prices," Barkindo said.
Israeli jets pounded Lebanon with a new wave of deadly raids Tuesday, the
seventh day of an assault, triggered by the abduction of two Israeli soldiers
by the militant Hezbollah group.
Leaders of the G8 nations -- Britain, Canada, France, Germany, Japan,
Italy, Russia and the United States -- have proposed an international
stabilization force for Lebanon, a move welcomed by Barkindo.
"I think it will help. Anything they can do now to stabilize the
situation, will help. The longer they leave it, the less ability for dialogue
and it will spread," he said.

NOT RULING OUT $80/BARREL
Asked whether crude oil prices could soon hit $80/barrel, Barkindo said:
"Anything is possible with this situation, it was over $78/barrel two days
ago."
At 1055 gmt, Brent North Sea crude for August deliver was up 94 cents
from its overnight settle at $76.86/barrel. In Asian electronic deals, New
York's main contract, light sweet crude for delivery in August, was trading in
the mid-$75/barrel range after closing at $75.30/barrel.
The contract rocketed to $78.40/barrel for the first time late July 13,
spurred by the Middle East strife but eased Monday after a report that
Israel's offensive in Lebanon could be over within days.
Another factor driving prices is speculation about a potential disruption
from Iran and the lack of spare capacity in oil-producing countries. Iran,
which exported 2.4 million b/d of crude in the Iranian year to March 2006, has
not ruled out using oil supply as a weapon in the nuclear dispute, and markets
are worried about the potential for exports to be disrupted in the event of
the standoff escalating.
"Spare capacity is still a major factor. Traders are looking at those
numbers very, very closely," Barkindo said.
The International Energy Agency estimates the total volume of current
spare capacity at just 2 million b/d.
OPEC member countries have been producing at full throttle for the past
few months. A Platts survey published Friday pegged OPEC production at 29.95
million b/d in June, with OPEC 10 output at 27.83 million b/d. The group
Friday blamed the latest surge in prices on geopolitics rather any fundamental
market imbalance and said it had accelerated plans to bring on-stream new
production capacity to re-establish a comfortable cushion of spare capacity.

FEARS THAT INDONESIAN OIL FACILITIES MAY BE DAMAGED
A devastating tsunami in Indonesia's Java Island, which has killed at
least 387 and injured 510, could also put pressure on oil prices if production
facilities are damaged, Barkindo said.
"I hope the tsunami in Indonesia has not affected the production
facilities because it could also add to the pressure on prices. Indonesia is a
producing country even if it is a net importer," Barkindo said.
Indonesia's state-owned Pertamina Tuesday said its Cilacap refinery in
Central Java, Cilacap fuel depot, and transit terminal in Tanjung Gerem have
not been affected by Monday's earthquake.
--Jacinta Moran, jacinta_moran@platts.com

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