ANALYSIS-OPEC self-interest to help West avoid oil shock

Reuters, 01.10.03, 4:47 AM ET By Tom Ashby

VIENNA, Jan 10 (Reuters) - The United States may have a vested interest in OPEC opening up the oil taps but Washington and other industrialised powers will have to rely on the cartel's self-interest to prevent an oil price shock, analysts said on Friday.

Arab-dominated OPEC does not openly welcome U.S. calls for extra supply, but producers are expected at an emergency meeting on Sunday to raise output to stop prices going much above $30 a barrel.

"The idea that the United States can bang the table and tell OPEC or Saudi Arabia what to do is divorced from reality," said Paul Stevens, professor of petroleum policy at Britain's Dundee University.

"Having said that, it is clearly in Saudi Arabia's interest to mitigate high prices."

OPEC kingpin Saudi Arabia wants the group to lift output by as much as two million barrels per day from 23 million bpd now to cover for losses from a strike in Venezuela.

With others in OPEC unwilling to add that much, Riyadh is likely to compromise on about a 1.5 million bpd, or seven percent, addition and leave the door open to more if war breaks out in Iraq.

U.S.-Saudi diplomatic relations are still cool after the September 11 attacks, perpetrated by mostly Saudi nationals, but their mutual interest in the oil sector remains strong.

Riyadh, with the lion's share of spare capacity, has as much interest in moderating prices as the West, because previous spikes in the 1970s and during the 1990-1991 Gulf War were followed by economic downturns, hitting demand and prices.

And with several decades' worth of reserves, OPEC wants to ensure a growing market for oil against competition from natural gas and other fuel sources.

"From a purely commercial point of view, the last time prices went very high it didn't do OPEC any good," said John Mitchell, associate fellow at the Royal Institute of International Affairs.

"From a political point of view, I am sure they don't want to be seen to be just doing what the U.S. wants, but on the other hand nor do they want to create enemies."

Oil prices soared by 25 percent in the last two months to touch two-year highs at $33.60 for U.S. crude, well above OPEC's preferred range of $22-$28, because of the export halt in Venezuela and fears of further shortages in an Iraq war.

Fears are that prices could soar if a cornered Iraqi President Saddam Hussein lashes out and tries to damage oil facilities in neighbouring Kuwait and Saudi.

U.S. CONTACT The U.S. State Department said earlier this week that a substantial OPEC increase would be a "positive development".

A spokesman said officials had been in contact with some of the Organisation of the Petroleum Exporting Countries ahead of Sunday's meeting in Vienna.

The head of the U.S. Energy Information Administration said an output increase of 1.5 million bpd "would certainly make a big dent" in the shortfall from Venezuela, where a strike has reduced oil exports by about two million bpd.

"Obviously, if they want to make a big impact, (they would increase output by) more than that," said EIA Administrator Guy Caruso. Washington in 2000 made a very public plea to OPEC and Saudi Arabia in particular when oil prices last surpassed $30 per barrel, creating huge tensions in the cartel which controls two-thirds of world exports.

Iran walked out of an OPEC meeting in that year, denouncing outside interference in the group's decision making.

Since George W. Bush took the U.S. presidency, the world's biggest energy consumer has concentrated more on encouraging Western investors to lift output outside OPEC, especially in Russia, Central Asia and Africa.

Stevens said Saudi Arabia had already put its oil industry on a war footing, despite tight OPEC limits, by pumping extra oil in October and November.

This oil is still either slow-steaming in tankers towards its markets in the West or kept in storage close to markets for release in case of a crisis, he said.

Shippers and traders say Riyadh is already preparing to raise production from the end of January, with customers told to expect more crude and extra tankers on charter.

The danger is that the Venezuelan stoppage, nearly six weeks old, could require that oil before any war on Iraq starts.