OPEC Might Increase Output to Offset Crises in Iraq and Venezuela

santafenewmexican.com Associated Press 01/12/2003

VIENNA, Austria—OPEC representatives arriving for an emergency meeting on oil production sought to reassure markets Saturday that the producers' cartel would supply enough crude to offset a shortfall in exports from Venezuela.

Delegates of the Organization of Petroleum Exporting Countries will consider increasing their official output of 23 million barrels a day by up to 6.5 percent when they meet today at group headquarters here.

OPEC called the meeting last week hoping to calm fears of a supply crunch caused by the ongoing strike in Venezuela. The strike, launched Dec. 2 by political opponents seeking to oust President Hugo Chávez, has slashed the country's exports by about 2 million barrels a day. Venezuela is the world's fifth-largest exporter and a major oil supplier to the United States.

Concerns about a possible U.S.-led war against Iraq have added pressure to world oil prices. Iraq has the second-biggest oil reserves after Saudi Arabia and there has been a steady buildup of American troops in the Persian Gulf.

Crude prices surged in recent weeks but fell sharply in anticipation of OPEC boosting production by up to 1.5 million barrels a day. OPEC pumps about a third of the world's crude supplies, which total about 79 million barrels a day.

"There will be no shortage of oil in the market. There will be no missing barrels," Saudi Arabian Oil Minister Ali Naimi said while arriving at his Vienna hotel.

Saudi Arabia is OPEC's most influential member and accounts for the bulk of the group's spare-production capacity.

An OPEC source said recently the Saudis were proposing to increase the group's daily output by 1.5 million barrels. Other members, including Algeria and Libya, favor a smaller increase of 1 million barrels.

"We have to see what quantity is required," said Obaid bin Saif Al-Nasseri, oil minister for the United Arab Emirates, speaking to reporters.

OPEC President Abdullah bin Hamad Al Attiyah acknowledged that the six-week strike that has crippled Venezuela's state-run oil monopoly has caused "a little bit of a shortage," but he refused to predict how much oil OPEC might add to the market to compensate.

"I've heard a lot of scenarios, a lot of numbers, but still we haven't reached the magic number," he said.

Naimi said he wanted to see the price of crude "less than what it is today."

Any increase would take effect Feb. 1, Al Attiyah said. That means American importers would not see any fresh crude until at least mid-March since Saudi shipments take at least 40 days to reach U.S. ports.

Some analysts argue that OPEC already is overshooting its new output target, set in December, and that any official increase would simply legitimize this overproduction.

A decision to increase output would mark an abrupt reversal of OPEC policy. The cartel's members decided just a month ago in Vienna to trim output by as much as 1.7 million barrels a day. The suddenness of OPEC's decision to call this meeting reflects its surprise at the deterioration in market conditions.

Saudi Arabia stands to gain the most from any production increase. Some OPEC members, including Indonesia, already are producing at or near capacity.

"This is an opportunity for Saudi (Arabia) to show that it is still a very valuable friend of the (United States)," said Raad Alkadiri, an analyst with The Petroleum Finance Co. in Washington.