Saudi Arabia: War Fear Driving Oil Price

abcnews.go.com Jan. 25 — By Knut Engelmann

DAVOS, Switzerland (Reuters) - Saudi Arabia said on Saturday there was no lack of oil in world markets despite fears of war in Iraq, signaling the world's top oil producer has no intention to raise production further for the moment.

"There is no shortage in the market and there should be no reason for prices where they are today," Saudi Oil minister Ali al-Naimi told a panel discussion at the World Economic Forum annual meeting in the Swiss ski resort of Davos.

"We checked. We called. I checked with individual customers, refineries and others. I ask them one question: Do you feel you need more oil? And the answer is no," he said.

Oil prices have surged -- topping OPEC's $22-$28 a barrel target range -- amid fears of a U.S.-led war in Iraq and because of a seven-week-old general strike that has cut exports from OPEC member Venezuela.

In the United States, the main buyer of Venezuelan crude, prices this week hit a two-year high of $35.20 a barrel, closing at $33.40 on Friday.

"We believe $25 is the right price to meet the interests" of producers, consumers, and world oil companies, Naimi said. "We will try to get it back at $25. That's where we want it to be."

OPEC two weeks ago raised production quotas by seven percent or 1.5 million barrels a day for 10 member countries.

Despite the extra oil, Naimi said prices remained high for fear of war in Iraq.

"There are all these drums of war going around," he said. "It has nothing to do with supply. We know there is a balance of demand and supply."

Still, he pledged that Saudia Arabia and the rest of the Organization of Petroleum Exporting Countries would ensure sufficient supplies should an attack on Iraq and continued troubles in Venezuela continue to hamper world supplies.

"We have always said that regardless of the cause of the shortage, OPEC and Saudi Arabia will do their utmost to make up for the shortage," he said.

His comments echoed those of OPEC Secretary-General Alvaro Silva, who told the high-powered gathering on Friday there was nothing more OPEC could do to rein in prices.

"What can we do more? I do not agree there is a lack of oil," said Silva. "The problem of the price is the threat of war."

Naimi said oil prices would be above $40 a barrel now if Saudi Arabia had not maintained spare capacity of 3-3.5 million barrels a day.

He declined to say exactly what Saudi was pumping but reiterated that Riyadh could quickly boost oil output to full capacity of 10.5 million barrels per day. He said t would need around 90 days to get the infrastructure in place to support such high output levels in the longer term.

Saudi Arabia's production quota was set at 7.963 million barrels per day from February but sources in the kingdom say it is expected to be pumping 8.5-9 million in the next few weeks.

OPEC President Abdullah al-Attiyah highlighted concerns in the cartel that high prices might quickly turn lower if Venezuelan exports were restored and war cut Iraqi supplies for only a short period.

He warned there could be a glut of oil in world markets when the onset of warmer weather in the northern hemisphere cuts demand just as the group has raised supply.

"We calculated that we will have a three million barrel (per day) surplus by March," he told Reuters. OPEC will next meet on March 11 to review its output levels.

World demand for crude in the second quarter usually falls by around two million bpd, and another two million bpd could be flowing onstream if the strike in Venezuela is resolved by then.