Oil from Iraq is expected to lower price of gas, at least in short run

The Outlook

June 09, 1996|By Suzanne Wooton

THE UNITED NATIONS last week temporarily lifted its oil embargo against Iraq, allowing the country to sell $2 billion worth of oil to buy food and medicine. OPEC nations meeting in Vienna refused to cut output to accommodate Iraqi's first exports in six years and instead raised the cartel's daily production ceiling by a half million barrels to 25 million and added 800,000 barrels to Iraq's allocation. OPEC members routinely exceed their quotas and the cartel actually produced 26.1 million barrels a day last month; the Paris-based International Energy Agency estimates demand for OPEC oil will remain unchanged at 24.5 million barrels a day for the rest of the year.

What will happen when the Iraqi oil begins flowing? Will there be a glut? With vacation driving season getting under way, can consumers look for a drop in gasoline prices?

Larry Goldstein

President, Petroleum Industry Research Foundation, New York City

It's a limited control re-entry for Iraq for humanitarian purposes with all the money going into a U.N. escrow account that will be carefully monitored. Iraq still has to come up with a very detailed distribution plan about how the food and medicine will flow in Iraq. Then the U.N. must approve that plan, so it could still be a couple months before you see oil flow.

We believe it will have an impact on oil prices, forcing them down $2 to $3 a barrel, largely because the oil will come in the third quarter when the world market will have a surplus. Crude [now about $20 a barrel] could drop to $16 a barrel. For every dollar drop in the price of a barrel, the price of gasoline typically drops 2.5 cents. You could see an 8-cent drop at the pumps.

Joseph M. Coale

Director of corporate communications, Crown Central Petroleum Inc., Baltimore

There are so many variables in this business, so it's impossible and imprudent to say any one factor is going to affect it. But, in and of itself, the Iraqi oil will act to push down prices. It's a positive for prices of all petroleum-based products, gasoline and distillates.

It's the old supply and demand adage. The more supply that comes on the market, the more downward the push on price, especially if there's not an offsetting demand. The consensus here is we're going to see these gas prices drift down during the summer.

By any measure, gasoline is a value to the consumer. It is one item that has almost defied inflation. The American consumer is spoiled, especially compared to the rest of the world. We've enjoyed this ride for a long time and we probably will for a while longer. But we have to face world reality, which is higher prices over the long term.

Adam E. Sieminski

Oil analyst, NatWest Securities, Baltimore

Iraq is going to be allowed to sell $2 billion worth of oil over a six-month period, which translates into 600,000 to 700,000 barrels per day, depending on the price. That's into a world market which is currently demanding 70 million barrels per day. It would be added to OPEC's current production of 26 million barrels of crude oil a day.

OPEC is dealing with two major questions: how to accommodate the Iraqi production and how to deal with the issue of overproduction. I think that OPEC is not going to make a definitive decision on quotas or how they're really going to deal with the Iraqi oil until there is a serious incentive to do so. The only incentive they're going to have is low oil prices. Until oil prices go down, they're not going to do anything about this. Once the Iraqi oil actually starts to flow, prices will probably go down in the short run. Then OPEC would have an emergency meeting and do something serious to accommodate the Iraqi oil. If the price of oil goes to $15 a barrel, you might want to think about filling up your home heating oil tank because I don't think it's going to stay there.

Demand has been running stronger than most people think.

The huge increases in non-OPEC oil supplies aren't going to be repeated over the next three years. I think OPEC will have an opportunity over the next three years for better pricing.

In the short run, we're likely to see a dip caused by the Iraqi oil, but it won't be long and it won't be deep. In general, there is more likelihood that prices will go up modestly rather than down.

Drew Cobbs

Executive director, Maryland Petroleum Council, the trade group for Maryland petroleum companies

Part of the reason that the price of crude went up to begin with was the anticipation that the embargo would be lifted and more crude would be coming on the market. When it wasn't lifted, crude went up.

There's so many variables and factors affecting price of gasoline. Inventories on gasoline stocks have made a comeback. They're still behind last year but refineries have been running higher capacity. With crude dropping, it's likely the price of gas will go down.

Pub Date: 6/09/96

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