OPEC poised to raise output

Tuesday, December 31, 2002 Posted: 8:11 AM HKT (0011 GMT)

LONDON (Reuters) -- OPEC will raise oil output quotas in mid-January in a bid to contain a price surge that has lifted crude to a two-year high, a senior OPEC delegate said on Monday.

The oil producers' cartel will trigger at least an extra 500,000 barrels a day, or 2.0 percent, under a mechanism that stipulates supplies be raised if prices for a basket of OPEC crudes stay over $28 a barrel for 20 days, the delegate told Reuters.

"There is a clear commitment that the mechanism will be implemented immediately," said the delegate.

"The 500,000 barrels a day is for sure. More than that is subject to ministerial consultations which are already underway."

The comments undercut oil prices that had hit a fresh two-year peak in Monday trade as dealers bet on a U.S. attack against Iraq in the New Year.

Output from OPEC member Venezuela is near to a standstill because of four-week-old strike with no sign that President Hugo Chavez will be meet opposition demands for an early election.

Prices settle

U.S. crude reached $33.65 a barrel and Brent touched $31.02 before the OPEC news triggered heavy profit-taking. Brent ended down 50 cents on the day at $29.67 and U.S. crude settled Monday at $31.37.

OPEC's crude basket was last valued at more than $31 a barrel and, unless prices fall sharply, will have stayed over $28 for 20 working days by January 15.

The OPEC delegate said oil ministers would not necessarily have to hold an emergency meeting to raise output quotas by more than the minimum 500,000 bpd.

"If they want to do more than that they can agree the volume by phone," he said.

Ministers in December raised output quotas by 1.3 million barrels a day to 23 million bpd from January 1 in a bid to legitimise quota-busting that means actual output has been running at some 24.5 million bpd.

What impact higher quotas will have on prices remains to be seen.

Of the 10 countries bound by quotas, only OPEC's leading producer Saudi Arabia and its Gulf ally the United Arab Emirates have any significant spare capacity.