New Equilibrium for Oil Markets

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Subj: Stratfor's Full Analysis - Net Assessment: New Equilibrium for Oil Markets
Date: 07/17/2003 07:47:10 PM Eastern Daylight Time
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Net Assessment:
New Equilibrium for Oil Markets

Originally published on Jul 11, 2003

Summary

After a year that can best be described as epileptic, oil markets
are finally in for a protracted period of relative calm as the
U.S. recovery and OPEC backpedaling absorb nearly all fresh
production from Iraq and Russia.

Analysis

Two primary themes will drive oil markets for the next year:
OPEC's ability to manage the return of Iraqi oil to the market,
and the U.S. economic recovery. Other issues will be a factor in
the markets, but it is these two that will dominate movements at
the highest level in the medium term.

Damage Assessment: Iraq

Iraq's return to the oil markets has been slower than the
markets' best-case scenario anticipated, but the problems have
not been due to war damage. The Army Corps of Engineers completed
its assessment in the first week of July, revealing that total
war-related damage to the Iraqi oil complex was a mere $250
million to $350 million -- an amount well within the $500 million
contract initially granted to Halliburton's Kellogg, Brown and
Root.

But from that high point, the damage assessment news turns sour.

New reports from the Iraqi Oil Ministry indicate that what began
as random looting eventually took turn toward much more
organization, with indications of flatbed semis and cranes being
used in the wholesale theft of large "immobile" pieces of
equipment. Though the looting has died down considerably since
April and May, it continues to plague operations, particularly in
the south. Looting alone has added some $750 million to the
repair bill, and that excludes any of the recent sabotage
attacks. Total income from Iraq's postwar oil sales to date
totals $200 million.

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(c) 2003 Strategic Forecasting, Inc. All rights reserved.