Wednesday, April 1, 2015
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Iraq violence threatens OPEC’s precarious balance

By
From page B11 | June 13, 2014 |

NEW YORK — The upheaval in Iraq could throw the world’s remarkably stable oil market out of balance, threatening a delicate equilibrium that has kept prices steady for four years.

Iraqi oil production is at risk because of the outbreak of violence involving militant groups who seized two cities this week and have pledged to march on Baghdad.

For now, the fighting is mostly in Iraq’s north, away from important oil-producing regions in the south. But the turmoil sent the price of Brent crude, the key international benchmark, up 2.8 percent Thursday to $113.02, its biggest gain since August.

More important, it raised questions about Iraq’s ability to continue to rebuild its oil infrastructure and increase production to meet rising global demand.

Global oil markets have been unusually steady since 2010. Dramatic changes in oil production around the globe have offset each other instead of wreaking havoc. That has helped keep world oil prices high enough to provide OPEC countries with robust income, but not so high that they scare customers away from buying more oil.

“Everybody’s happy,” Secretary General Abdullah Al-Badry said Wednesday in Vienna after the Organization of Petroleum Exporting Countries concluded a semi-annual meeting.

Brent has hovered in the range of $110 per barrel over much of the last four years, with surprisingly low volatility. That has also led to stable gasoline prices for U.S. drivers, who have been paying in the neighborhood of $3.50 per gallon.

“It’s comfortable for everyone,” says Judith Dwarkin, chief energy economist at ITG Investment Research. “The global economy has recovered, oil demand is growing at trend, and prices are high and stable.”

But what has been a comfortable market masks some difficult realities that OPEC has so far been lucky to avoid. There have been production booms in some areas of the world that could have sent prices plummeting. And there have been shortages in other areas, including in OPEC countries, that could have sent prices rocketing higher.

OPEC has been fortunate, experts say, because the organization would be hard-pressed to adjust if this precarious balance were upended. OPEC members have a limited ability to either raise or lower production to steady the market, they say.

Instead, “OPEC hasn’t had to make difficult decisions,” said Michael Levi, Director of the Program on Energy Security at the Council on Foreign Relations.

Production from non-OPEC countries, driven especially by a boom in U.S. shale oil, has risen by 4 million barrels per day over the last four years. That’s more than the entire output of Canada, the world’s fifth-largest producer, and more than enough to push oil prices lower.

At the same time, Iraqi output has risen 22 percent since 2011 to 3.3 million barrels per day, further adding to supplies. That too could have pushed oil prices lower.

But prices haven’t fallen, in part because production from other OPEC members has fallen — though not because of a concerted effort by OPEC. Libyan production has been almost completely held out of the market due to political and labor unrest. Western sanctions against Iran, once the world’s second-largest exporter, have reduced Iranian output by about one-fifth. And production from Venezuela and Nigeria has slipped because of economic and political difficulties.

The rise in production in the U.S. and elsewhere has matched almost exactly the rise in world demand, from 88.5 million barrels a day in 2010 to an estimated 92.8 million barrels a day this year. It also helped cushion the market somewhat from unexpected disruptions.

In early 2011, when Libya descended into violence, Brent crude spiked to nearly $126 per barrel. While Iraq’s violence this week isn’t as widespread, the oil market’s reaction — a rise of 2 percent — is probably much more modest than it would have been years earlier.

Changes to this scenario would put OPEC in a difficult spot. Analysts believe OPEC nations, other than Saudi Arabia, are producing as much as they possibly can, so they aren’t in a position to boost output substantially to meet a spike in demand or avert another unexpected production outage.

Nor would OPEC member countries be likely to make production cuts because they are especially desperate for cash to run social programs and fund national defense.

“OPEC rarely if ever constrains or influences the oil production rate of its member states,” writes Jeff Colgan, a professor at the School of International Service at American University in a study soon to be published in the journal International Organization. “A cartel needs to set tough goals and meet them; OPEC sets easy goals and fails to meet even those.”

Recently, the little balancing the market has needed has come from Saudi Arabia, the world’s largest exporter. As the one OPEC nation with a healthy oil industry, enormous reserves and a relatively stable economy, it has acted on its own to keep the market in balance despite official OPEC production levels.

For example, forecasters expect OPEC production to rise later this year by about 500,000 barrels per day over the official quota of 30 million barrels per day it set at the meeting in Vienna. Nearly all of this will likely come from Saudi Arabia.

And while experts don’t expect much disruption of Iraqi oil, if any, from the recent violence, they say if output is slowed, Saudi Arabia will step in with even more crude to keep the market in balance.

The question, they say, is whether Saudi Arabia can continue, by itself, to do what OPEC as a whole was organized to do. Iraq’s insurgency may make that more difficult.

“The most significant impact from the insurgency is likely to be the disruption to Iraq’s already ambitious targets for oil production,” wrote Tom Pugh, a commodities economist at Capital Economics.

 

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Records detail shooting victim’s court history

By Jess Sullivan | From Page: A1, 40 Comments | Gallery

 
Vallejo youth wins county spelling bee

By Ian Thompson | From Page: A1 | Gallery

 
25th annual Rush Ranch Open House on April calendar

By Ryan McCarthy | From Page: A2

 
 
Saturday Club schedules Shower of Flowers event

By Amy Maginnis-Honey | From Page: A3

 
Symphony opportunity, scholarships available

By Susan Winlow | From Page: A4

 
Searchers find 84-year-old missing nearly a day

By Kevin W. Green | From Page: A4, 2 Comments | Gallery

 
Free Healthier Living workshops begin this week

By Kevin W. Green | From Page: A5

Music teachers receive program grants

By Susan Winlow | From Page: A5

 
Group plans Haiti missions fundraisers

By Amy Maginnis-Honey | From Page: A6, 2 Comments

Travel presentation ready to roll in Vacaville

By Amy Maginnis-Honey | From Page: A6

 
Vallejo woman hit, killed by vehicle

By Ian Thompson | From Page: A6

Workshops offer information on child support process

By Kevin W. Green | From Page: A6

 
 
Helen Mirren film set for debut

By Amy Maginnis-Honey | From Page: B9 | Gallery

 
Frazier to deliver keynote at Solano EDC event

By Kevin W. Green | From Page: B10

WIB to host regional career fair

By Kevin W. Green | From Page: B10 | Gallery

 
Fairfield police log: March 29, 2015

By Susan Hiland | From Page: A14

Fairfield police log: March 28, 2015

By Susan Hiland | From Page: A14, 2 Comments

 
Suisun City police log: March 29, 2015

By Susan Hiland | From Page: A14

Suisun City police log: March 28, 2015

By Susan Hiland | From Page: A14

 
Man struck by car, injured

By Ian Thompson | From Page: A14, 1 Comment

.

US / World

 
Family: Man dead at Hollywood Hills home is Andrew Getty

By The Associated Press | From Page: A7

 
Tuskegee Airman Leslie A. Williams dies in California at 95

By The Associated Press | From Page: A7

 
3D print technology provides ‘robohand’ to 7-year-old girl

By The Associated Press | From Page: A7, 1 Comment | Gallery

 
Endangered bighorn sheep moved to Yosemite, Sequoia parks

By The Associated Press | From Page: A7 | Gallery

Defense rests in 1st phase of Boston Marathon bombing trial

By The Associated Press | From Page: A10

 
Woman charged with stabbing boyfriend after salsa argument

By The Associated Press | From Page: A10

 
Police: Prisoner who stole gun, fled hospital found in DC

By The Associated Press | From Page: A10

 
Dress-wearing man killed by NSA police had lengthy record

By The Associated Press | From Page: A10

 
Exercising critically ill patients may help speed recovery

By The Associated Press | From Page: A10 | Gallery

Nigerian troops prevent Boko Haram attacks

By The Associated Press | From Page: A11

 
Iran nuke talks extend past deadline

By The Associated Press | From Page: A11, 2 Comments

Transportation strike shuts down Argentina

By The Associated Press | From Page: A11

 
Relief program paid millions for ‘flawed’ work

By The Associated Press | From Page: A14

Buhari defeats Goodluck Jonathan in Nigerian election

By The Associated Press | From Page: A15

 
.

Living

Community Calendar: April 1, 2015

By Susan Hiland | From Page: A2

 
Today in history: April 1, 2015

By Maureen Fissolo | From Page: A2

Horoscopes: April 1, 2015

By Holiday Mathis | From Page: B7

 
Should we sent wedding invitations to relatives we know can’t come?

By Kathy Mitchell and Marcy Sugar | From Page: B7

Dressing up spring asparagus with an easy brown butter sauce

By The Associated Press | From Page: B8

 
 
.

Entertainment

TVGrid

By Daily Republic Syndicated Content | From Page: B9

 
‘General Hospital’ leads Daytime Emmy nominations

By The Associated Press | From Page: B9

Olympic champ Gabby Douglas’ family to get reality show

By The Associated Press | From Page: B9

 
.

Sports

Randle sets record, leads Stanford past ODU in NIT semis

By The Associated Press | From Page: B1

 
Vanden’s Orme strikes out 16, tosses no-hitter

By Daily Republic staff | From Page: B1

Prep boys golf preview: All 4 city teams are young

By Brian Arnold | From Page: B1

 
Short-handed Miami rallies to beat Temple 60-57 in NIT semis

By The Associated Press | From Page: B1

 
Tennessee hires former Texas coach Rick Barnes

By The Associated Press | From Page: B2

Thunder star Kevin Durant has bone graft surgery

By The Associated Press | From Page: B2

 
Stanford’s Christian McCaffrey showing off versatility

By The Associated Press | From Page: B2

NASCAR driver Kyle Larson released from hospital

By The Associated Press | From Page: B2

 
Barry Zito’s scoreless streak ends; A’s beat Angels 13-10

By The Associated Press | From Page: B2

Cubs will track noise so Wrigley rehab doesn’t disturb fans

By The Associated Press | From Page: B2

 
Lincecum pitches into 6th in Giants’ win over Rockies

By The Associated Press | From Page: B2

AP’s Run to the Roses: Mubtaahij No. 8; Dortmund still No. 1

By The Associated Press | From Page: B2

 
Michigan State title would be worth $1 million to Vegas man

By The Associated Press | From Page: B2

AP study projects average MLB salary tops $4M

By The Associated Press | From Page: B2

 
University of North Dakota begins campaign to find nickname

By The Associated Press | From Page: B2

Judge rules Ernie Banks will is valid

By The Associated Press | From Page: B2

 
Kentucky’s platoon system gives way to traditional rotation

By The Associated Press | From Page: B2

Chris Mullin returns home to coach St. John’s

By The Associated Press | From Page: B2

 
Soccer player at center of search killed crossing LA freeway

By The Associated Press | From Page: B2

Frozen Four will be old home week for BU coach David Quinn

By The Associated Press | From Page: B2

 
Rio Olympic tickets go on sale despite football uncertainty

By The Associated Press | From Page: B2

Tiger Woods plays practice round at Augusta

By The Associated Press | From Page: B2

 
US gives up another late goal in 1-1 tie at Switzerland

By The Associated Press | From Page: B2

NASCAR finds Ryan Newman’s race team for manipulated tires

By The Associated Press | From Page: B2

 
Patriots owner: Aaron Hernandez told me he was innocent

By The Associated Press | From Page: B2

Raiders release DT Antonio Smith

By The Associated Press | From Page: B2

 
.

Business

Many trucks being driven beyond designed top speed

By The Associated Press | From Page: B10

 
Buffet expected to buy dealerships

By The Associated Press | From Page: B10

San Bruno supports higher fine

By The Associated Press | From Page: B10

 
Google to release their cheapest laptop yet

By The Associated Press | From Page: B10, 2 Comments

Several charged in Medicaid shoe fraud

By The Associated Press | From Page: B10, 4 Comments

 
Fast food organizers expand their campaign

By The Associated Press | From Page: B10, 2 Comments

Online craft retailer Etsy preps for IPO

By The Associated Press | From Page: B10

 
.

Obituaries

Gordon Davis

By Nancy Green | From Page: A4

 
Carlos Penados

By Nancy Green | From Page: A4

.

Comics

Beetle Bailey

By Daily Republic Syndicated Content | From Page: B6

 
For Better or Worse

By Daily Republic Syndicated Content | From Page: B6

Rose is Rose

By Daily Republic Syndicated Content | From Page: B6

 
Garfield

By Daily Republic Syndicated Content | From Page: B6

Peanuts

By Daily Republic Syndicated Content | From Page: B6

 
Get Fuzzy

By Daily Republic Syndicated Content | From Page: B6

Pickles

By Daily Republic Syndicated Content | From Page: B6

 
Blondie

By Daily Republic Syndicated Content | From Page: B6

Frank and Ernest

By Daily Republic Syndicated Content | From Page: B6

 
Dilbert

By Daily Republic Syndicated Content | From Page: B6

B.C.

By Daily Republic Syndicated Content | From Page: B6

 
Baby Blues

By Daily Republic Syndicated Content | From Page: B6

Baldo

By Daily Republic Syndicated Content | From Page: B6

 
Wizard of Id

By Daily Republic Syndicated Content | From Page: B6

Sally Forth

By Daily Republic Syndicated Content | From Page: B6

 
Cryptoquote

By Daily Republic Syndicated Content | From Page: B7

Crossword

By Daily Republic Syndicated Content | From Page: B7

 
Bridge

By Daily Republic Syndicated Content | From Page: B7

Sudoku

By Daily Republic Syndicated Content | From Page: B7

 
Word Sleuth

By Daily Republic Syndicated Content | From Page: B7