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1. Production and Prices

2. Basra

3. China

4. Food Shortages

5. Energy Briefs

1. Production and Prices

Prices rose as high as $107.70 a barrel at mid-week when it was reported that a pipeline linking southern Iraqi oilfields with the export terminal at Basra had been cut. Prior to the report, concerns that a weakening US economy would cut demand had kept prices just above $100 per barrel. By Friday, however, reports that the damage had been repaired and that oil exports were back to normal led to prices closing the week at $105.62. Oil is now 65 percent higher than a year ago.

Prices were supported last week by the stocks report that showed US refineries operating at an unusually low 82.2 percent of capacity. Total US petroleum stocks decreased by 6.5 million barrels last week. US inventories except for distillates are still in good shape for this time of the year. Overall consumption of petroleum products in the US is now down by 2.2 percent from last year, except for gasoline consumption which is only down by 0.3 percent.

Tanker tracker Petrologistics reported that OPEC probably increased its production by 100,000 b/d during March with most of the increase coming from Iran which had weather-related delays in February. Of more significance was a statement by Russia’s Natural Resources Minister that Russia’s oil output may decline for the first time in a decade.

Prices in the coming week are likely to be driven by developments in Iraq and status of the US dollar which many are predicting will continue to decline next week as the US economic situation deteriorates.

2. Basra

Baghdad’s 30,000 man assault on militants in Basra on Tuesday may mark the beginning of a turning point in the Iraqi situation. As the Shiite militia forces loyal to cleric al-Sadr came under attack, demonstrations and fighting soon spread as far north as Baghdad. Prior to the attack, it was reported that Iraq has boosted exports to a post-invasion high of 400,000 b/d through the northern pipeline to Turkey, and that exports through Basra were holding steady at about 1.5 million b/d.

Initially the government announced that the fighting was having no impact on oil exports; however that changed when the largest crude pipeline to the export terminal was blown up, slowing exports by possibly as much as 800,000 b/d for two or three days. By the end of the week, the damage had been repaired, but many oil workers were trapped at home or at job sites by the fighting. Over the weekend, a ceasefire was arranged after it became clear that the government offensive had bogged down, that further fighting would only damage the Shiite cause and would likely reduce oil revenues to both sides.