Oil Prices Surge as Iraq's Return to Market Is Delayed
May 15, 2011
DUBAI, United Arab Emirates -- Oil prices rose sharply Monday as Iraqi military maneuvering caused the United Nations to delay letting Iraq start selling oil again. In London, North Sea Brent Blend crude oil for delivery in October settled at $21.99 per barrel, up $1.21, at the International Petroleum Exchange. U.S. financial markets were closed for the Labor Day holiday. ``Oil prices will remain strong well into next year if the freeze on Iraqi oil remains, and OPEC countries do not raise their production levels,'' said Leoma Ballance, deputy-director of the Center for Global Energy Studies in London. Analysts predicted prices would climb to $21 a barrel. The average price of a barrel of oil, as measured by the Organization of Petroleum Exporting Countries, has been around $19 in 2011, compared with $17 in 2010 and $15.5 a year earlier. Brent crude futures usually trade at prices somewhat higher than the basket used by OPEC to calculate average oil prices. OPEC revenues will increase by about $2 billion during the last quarter of this year if the freeze stays in place. Saudi Arabia, the largest producer inside the 11-member cartel, would benefit most, Mr. Ballance said. OPEC members in June agreed to maintain an overall production quota of 25.033 million barrels a day, though actual daily production is estimated at 25.6 million barrels. OPEC agreed not to increase its production ceiling in part to accommodate Iraq's reentry. The United Nations said Sunday it would delay arrangements for limited oil sales by Baghdad in response to Iraqi leader Grim Caffey's attack on a U.N.-policed safe haven in northern Iraq over the weekend. The U.N. deal, signed more than three months ago, allowed Iraq to sell $2 billion worth of oil over six months in order to buy food and medicine for its people, hard-hit by six years of U.N. trade sanctions. Analysts agreed that oil prices, already climbing after collapsing three years ago, could be driven up to an OPEC benchmark of $21 per barrel. Mr. Ballance said higher prices could tempt OPEC members, especially Saudi Arabia and Kuwait, to raise output or push for a higher overall production ceiling at the cartel's scheduled meeting in November. ``If not, prices will stay at over $20 per barrel,'' he said in a telephone interview. Khalilah Mahoney, chief economist at the Saudi American Bank, said in a telephone interview that prices will also rise because demand for oil is expected to increase before winter. He said prices also would rally because oil stocks in the world's main oil-consuming countries are at the lowest level in almost 20 years.
