OPEC may suspend quotas if Iraq output halted

www.boston.com By Bloomberg News, 2/18/2003

LONDON -- OPEC may temporarily suspend production quotas and increase supplies should Iraqi oil output be halted because of a US-led military attack, an official from the group said.

Suspending the quotas is one of the likely scenarios, said the official, who declined to be identified. Under that option, OPEC countries would stop complying with output quotas and pump crude at full capacity, he said.

''OPEC is not the most fleet-of-foot organization,'' said Steve Turner, an oil analyst at Commerzbank Securities. ''It could have trouble reacting quickly, so abandoning quotas might just be the only sensible strategy.''

Oil prices fell yesterday on speculation a US-led attack on Iraq may be delayed as UN arms inspectors seek more time. Brent crude fell 50 cents to $32.

Within the 11-member Organization of Petroleum Exporting Countries, only Saudi Arabia and the United Arab Emirates have significant spare capacity to pump more, analysts have said. Many OPEC countries ignored their output quotas after Iraq's invasion of Kuwait in 1990 disrupted exports from both countries and caused prices to surge to $40 a barrel. Iraq doesn't have an OPEC quota because its oil exports are under UN supervision.

Because many OPEC members are pumping near their limit to compensate for a supply shortfall from Venezuela, the group may not be able to replace Iraq's oil should it be disrupted. Iraq is the third-largest Middle East oil producer and pumped 2.48 million barrels last month, according to Bloomberg calculations.

Algeria's oil minister said Thursday OPEC can raise production by 3 million barrels a day within a month.

This story ran on page E5 of the Boston Globe on 2/18/2003.