DAVOS: OPEC's Silva Says Prices High On Iraq, Not Supply

sg.biz.yahoo.com Saturday January 25, 12:43 AM By Erik T. Burns Of DOW JONES NEWSWIRES

DAVOS, Switzerland -(Dow Jones)- The Organization of Petroleum Exporting Countries Secretary General Alvaro Silva-Calderon said Friday he is worried about the current high level of oil prices, but said there was no shortage in supplies.

"We believe that the problem is not the supply - the market is well-supplied," Silva told Dow Jones Newswires at the World Economic Forum's annual meeting. Even so, "OPEC is worried about the level of prices," he said.

"At present, the problem is the threat of the war (in Iraq), the nervousness in the market, and the situation of Venezuela also," Silva said, referring to the seven-week strike that has crippled Venezuela's oil industry and reduced exports to a trickle.

But Venezuelan output is increasing, he said. The country is currently producing around 1.2 million barrels a day, and expects to increase that to 2.0 million b/d by the end of February. Venezuela's capacity is around 2.7 million-2.8 million b/d, he said.

"The current situation (in Venezuela) is a transitory situation," Silva said.

He added that a "war premium" in the crude oil price based on fears of disruptions to Iraqi oil exports in the event of war was more difficult to address.

"That is out of our control," Silva said.

Silva also said OPEC is concerned about the possibility of oversupply in the market going into the second quarter, following its Jan. 12 decision to raise its output ceiling by 1.5 million b/d, effective Feb. 1.

Oversupply in the second quarter, when warmer weather traditionally leads to lower demand, "could cause a violent drop of the price," Silva said.

Asked about non-OPEC producers, Silva said cooperation with them is getting better.

"They share with us the concept of the stabilization of the market," Silva said.

-By Erik T. Burns, Dow Jones Newswires; +351 917 265 020; erik.burns@dowjones.com