CRUDE OIL PRICES UP AS STOCKS, OUTPUT FALL
U.S. crude oil prices rose above 18 
dlrs a barrel this week and industry analysts said the price
could rise another dollar as inventories fall.
    "OPEC is keeping its production down, and in the cash market
there is tight supply of crude with short transportation time
to major refining centers," said Daniel McKinley, oil analyst
with Smith Barney, Harris Upham and Co. "That could send prices
50 cts to a dollar higher," he added.
    The U.S. benchmark crude West Texas Intermediate rose to
18.15 dlrs a barrel today, a rise of 1.50 dlrs this week.
    The rally in oil prices this week came after prices fell in
February more than two dlrs from its high of 18.25 dlrs a
barrel.
    "Oil traders were pulling prices down on the assumption that
oil stocks were building and OPEC was producing well above its
15.8 mln bpd quota, but now both of those assumptions have come
under question," McKinley said.
    Yesterday the International Energy Agency in its monthly
report said that oil stocks in the OECD area, or in
industrialized nations, were drawn down by 1.3 mln bpd during
the first quarter of this year.
    IEA estimates that the draw in oil stocks during the first
quarter of this year will come largely from oil companies whose
inventory levels by April one will be an estimated 326 mln
tonnes, or about 74 days consumption.
    Industry analysts also said the estimate of a 3.5 mln bpd
draw in stocks made by Shell Chairman Peter Holmes yesterday
fed speculation that other major companies were destocking.
    Traders said the destocking has come about as a result of a
so-called buyers strike, which kept refiners from buying
officially priced OPEC oil in an effort to get the organization
to offer discounts to the official price.
    "This struggle between the companies and OPEC is the
ultimate game of chicken but it will be resolved relatively
soon. I would imagine by about the middle of the month (March),"
the general trading manager of an international oil company
told Reuters in a telephone interview.
    For its part OPEC has moved to win this game by cutting
excess supplies from the market by a reduction of its own
output, traders said. A Reuter survey estimates OPEC output to
be 14.7 mln bpd this week.
    Also, an earthquake in Ecuador yesterday led it to suspend
oil exports indefintiely and force majeure its shipments.
    "This will reduce short-haul availabilities by about 250,000
bpd almost immediately and the longer the suspension continues,
the larger the draw in stocks will be for companies expecting
it to be there," McKinley said.
    International oil traders said that other short-haul
crudes, such as North Sea Brent, were also scarce because Asian
refiners bought the oil after absorbing a lot of the readily
available Mideast crudes earlier this week.
    If this pattern continues then oil companies will bid up
the price of oil as they purchase for their refineries, trading
managers at several companies told Reuters.
    But there were skeptics who said they wondered how long
OPEC can retain its unity if buyer resistance continues.
    Stephen Hanke, chief economist at Friedburg Commodity
Management, said OPEC production was lower "because of the
Saudi cut (to 3.1 mln bpd) and this could spell trouble if it
gives other members an incentive to exceed their quotas."
     He added, "The Saudis will be picking up the tab for other
members who produce over their quota, and the drain on the
Saudis will continue, forcing them to cut output maybe as low
as 2.5 mln bpd to support the 18 dlrs average price," he added.
    There are also signs of some OPEC crudes being sold in the
spot market at below OPEC official prices, traders said.
    Oil traders said Nigerian Brass River sold for delivery
into the U.S. Gulf at a price related to North Sea brent, which
traded this week at 17.60 dlrs, far below the official price of
18.92 dlrs for the similar quality Bonny Light.
    Iranian oil is also surfacing in the U.S. Gulf and the Far
East at reported discounts to its 17.50 dlrs official price.
    "There is a lot of oil priced on government-to-government
deals, which are below official prices and this is probably
being resold," one international trader said.
 Reuter
