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By Bruce Stanley AP Business Writer

LONDON — World oil inventories are adequate in spite of Iraq’s suspension of its crude exports, but supplies are expected to tighten in coming months as refiners buy more oil to meet seasonal consumer demand, a respected study said Tuesday. Markets have shrugged off Iraq’s export stoppage, for now at least. Oil inventories have risen slightly in key importing nations, and prices for crude oil and gasoline have eased in recent weeks, the International Energy Agency said in its monthly oil report.

Still, the agency warned that the outlook remains uncertain.

“Independent of the Iraqi supply disruption, the market will need more oil in the second half of the year. The fundamentals remain to be faced,” it said.

The Paris-based agency is the energy watchdog of the Organization for Economic Cooperation and Development, a group of the world’s wealthiest countries.

Iraq halted 2.1 million barrels in daily oil shipments on June 4, trimming about 3 percent from global supplies. It stopped exporting because of a dispute with the United Nations, which regulates Iraqi exports.

The agency noted that energy markets reacted calmly to the Iraqi decision, in part because major oil producers have enough spare production capacity to pump an additional 4 million barrels a day.

Members of the Organization of Petroleum Exporting Countries, meeting last week in Vienna, Austria, decided to hold their output steady. However, they plan to reassess market conditions next month in light of the Iraqi action.

“What matters now is whether OPEC responds quickly enough to the shortfall of Iraqi oil,” said Lawrence Eagles, head of commodity research for London brokerage GNI Ltd.

OPEC members already may be increasing their production — unofficially — to replace some of the missing Iraqi barrels, Eagles said.

Compared with its assessment last month, the agency forecast that global demand for oil will remain steady this year at 76.55 million barrels a day. An upsurge in consumption in China and the former nations of the Soviet Union is offsetting the economic slowdown that has dampened demand in the United States.

World supplies stood at 76.53 million barrels a day in May, down 470,000 barrels from April, the report said. OPEC’s output dropped by 360,000 barrels a day, excluding Iraq, while North Sea output fell by half that amount due to maintenance work on offshore oil rigs.

Inventories grew in April and are 99.2 million barrels larger than at the same time last year, the agency said. However, inventory levels are “significantly” smaller than in 1999 and 1998, and the agency warned importing countries against becoming complacent.

Global demand is expected to grow by 1 million barrels a day during the third quarter and by an additional 2 million barrels in the fourth quarter, the agency explained.

“If Iraq remains out of the market, the situation is all the more pressing,” it said. The agency report portrayed an oil market that was “remarkably normal” and “very calm,” said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London.

“The subtext is, ‘We can do without Saddam for the time being,’” he said.

The agency said crude prices softened in late May and early June, particularly in the United States where inventories expanded. Gasoline prices fell “sharply” for similar reasons, it said.

However, profit margins narrowed for refiners, portending possible trouble later in the year when seasonal demand for heating oil starts to rise. If profit margins are too unattractive, refiners could be reluctant to buy the crude needed to process into heating oil.

More OPEC oil could help forestall such a situation. Gignoux expects OPEC members to agree to boost output when they meet July 3 in Vienna. It would be “logical” for them to replace the full amount of Iraqi production at that time, he said.

The bulk of any fresh oil would probably come from Saudi Arabia, OPEC’s largest producer.

-- Martin Thompson (, June 13, 2001

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