OPEC meets to contain oil prices

Cartel members discuss how to make up for disruption caused by Venezuela. January 12, 2003: 10:15 AM EST money.cnn.com

VIENNA (Reuters) - OPEC Sunday readied extra production to stave off a spike in oil prices threatened by a strike in Venezuela and a possible war in Iraq.

The Organization of Petroleum Exporting Countries is set to respond with a temporary production hike to fill the Venezuelan gap in a bid to bring prices down. Talks started at 1130 GMT.

Leading cartel producer Saudi Arabia, in control of most of the world's spare capacity, said it was already pumping more to fill the two million barrels a day hole on world markets. "There is no shortage. We never allowed the shortage to take place," Naimi told reporters before Sunday's emergency OPEC meeting.

Riyadh is trying to prevent oil spiking to heights that might harm world economic growth and hit crude demand. U.S. oil prices recently rose above $33 a barrel for the first time in two years. It was valued at $31.58 Friday.

Naimi said he could open the taps to 10 million barrels daily at just two weeks notice, some two million higher than estimated Saudi output in December.

"We can get to 10.5 right away but to maintain that level we need 90 days to formalize contracts for extra rigs with drilling companies," he added of the kingdom's full capacity.

Fellow cartel members the UAE, Kuwait, Nigeria and Algeria also held spare capacity, the minister said. 23 million

Naimi opposed any increase at Sunday's meeting in formal limits for 10 member countries with quotas, because Venezuela is out of the market.

"At the last (December) meeting we evaluated the market needed 23 million barrels per day. The ceiling is still 23 million barrels a day and we will maintain 23 million barrels a day," he told reporters.

Delegates said ministers are likely to decide how much is missing from Venezuela and make clear they intend to reverse the addition once Venezuelan deliveries are restored.

With no end in sight for the strike, that could be some time. Ali Rodriguez, President of state Petroleos de Venezuela SA blamed sabotage at oilfields, refineries and computer systems for the prevention of a swift return to production.

Ministers from Kuwait and the UAE have said preliminary discussions focused on a 1.0-1.5 million bpd increase. But Saudi wants more. Naimi said that with a Venezuelan outage of two million bpd, an increase of 1.5 million would not be enough.

Delegates said that as a compromise, ministers might decide simply to make clear their intention to make up for the Venezuelan loss without announcing any exact additional volume increase, or individual allocations.