Oil slips but mounting supply woes keep prices high

22 Jun, 2004

US oil prices eased slightly on Monday under pressure from the expiry of the prompt futures contract, but brokers said ongoing supply disruptions were likely to keep the market firmly above $35 a barrel.
US light crude for July delivery, which is due to come off the board on Tuesday, slid 21 cents to $38.54 a barrel. The August contract fell 18 cents to $38.82 a barrel.
Supply worries are dominating the oil market's attention with production disruptions in Iraq, Norway and possibly Azerbaijan at a time when robust economic growth has sent oil demand growing by the fastest pace in 24 years leaving little spare capacity in the world to counter any prolonged outage.
Iraq was preparing to resume partial crude exports on Monday, but Norwegian oil workers were considering whether to widen a strike that has already cut more than 10 percent of output at the world's third-biggest exporter.
It was also unclear whether Azure crude exports from the Black Sea port of Novorossisk were affected after an explosion on Sunday at a pipeline taking oil from Azerbaijan across Russia.
"There's no pressing need to sell oil at the moment, there's a lot of factors on the supply side," said David Thurtell, commodities strategist at Commonwealth Bank of Australia.
"If Iraq or Norway is taken out of the equation for any significant length of time, we start getting into territory where even Saudi Arabia may not be able to make up the shortfall."
An Iraqi oil source said on Monday that crude was being pumped through a repaired pipeline running to the Basra oil terminal and crude exports were expected to resume within hours.
"We expect within a few hours we will start loading maybe around 12 o'clock noon today (Baghdad time) (0800 GMT)," the oil source said. Engineers completed repairs on Sunday at one of two pipelines blown up in sabotage attacks last week that cut about 1.6 million barrels of daily exports from the southern terminals of Basra and Khor al-Amaya. The source said exports loading were expected to reach 40,000 barrels per hour from the Basra terminal using one pipeline until the second, larger one is repaired. The volume is equivalent to 960,000 barrels per day (bpd).
Repairs on a larger, 48-inch (122-cm) line were due to start on Monday. Strike action in Norway has shut 315,000 bpd of production with more platforms expected to close by mid-week.
Norway usually pumps three million-bpd and is the third-biggest exporter after Saudi Arabia and Russia. "We will be meeting in coming days to decide whether to step up the action," Terje Nested, leader of Norway's main OFS oil union said on Sunday.
Adding to supply woes, a section of pipeline taking crude oil from Azerbaijan across Russia for export was shut on Sunday after an explosion. About 2.5 million tonnes of Azure oil is pumped through the pipeline every year to the port of Novorossisk. It was not immediately clear whether exports were affected by the blast.

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