OPEC: speculation driving oil prices - Cartel says it can cover shortfall of output due to Iraq war as crude hits post-Gulf war high.

money.cnn.com February 27, 2003: 8:59 AM EST

VIENNA (Reuters) - OPEC said Thursday it can cover any stoppage of Iraqi oil during war without the need for consumer countries to release emergency reserves even as crude prices hit a 12-year high.

Speaking as U.S. oil prices set a post-Gulf war high of $38.66 a barrel, cartel Secretary-General Alvaro Silva said: "This is not a problem of oil in the market, it is a problem of speculation."

"Yes, we are confident we can manage the situation given the level of production in Iraq," he said. "OPEC has been managing the case of Iraq for more than 10 years. We will try to alleviate the situation in the normal way and meet our commitment to stabilize the market," he told reporters at OPEC headquarters

U.S. light crude spiked $1.04 to $38.74 a barrel, the highest oil price since Iraq's invasion of Kuwait in 1990 when crude peaked at over $41. London Brent gained 66 cents to $33.52, near a two-year high.

A frigid winter in the U.S. also boosted demand for oil products, particularly heating oil.

"It's all down to a shortage of heating oil and natural gas in the United States, backed up by the prospect of war," said Christopher Bellew of brokers Prudential Bache in London.

OPEC's Silva said the producer group was already pumping beyond official output limits but could not stop speculators driving oil prices higher.

"We put 2.8 million barrels a day more in the market in December and January and you can see the result," he said of extra OPEC output.

Industrialized consumer nations, including the United States, have yet to decide whether or not they will release crude from emergency stockpiles, should the U.S. launch an attack against Baghdad. Spare cushion

Producers are hoping they can convince the Paris-based International Energy Agency, which controls the reserves, that a repeat of its 1991 Gulf War emergency drawdown will not be required.

The group says it has the capacity to fill any shortage from Iraq, as well as compensate for shortfalls from Venezuela, where a strike is in its 12th week.

It will want to avoid the IEA triggering sales from the huge reserves held among 26 member countries that include the U.S., Germany and Japan for fear the extra oil will cause a slump in prices after any war.

Silva said producers had another four million barrels a day of spare supply ready to call on, easily enough to cover Baghdad's 1.7 million bpd of exports.

Saudi Arabia already thought to be pumping nine million of its available 10.5 million bpd, independent experts put spare supply in the cartel at little more than two million.

OPEC meets March 11 and is expected to leave official supply quotas unchanged.

"Until now 24.5 million is enough, " said Silva of the official limit for 10 member countries.

Delegates have said OPEC may suspend quotas altogether during the period of any war, although Silva played down that possibility.

"It is not an issue of suspending quotas. The quotas have been functioning well," he said. "But of course in the case of catastrophe that's another question. Nobody knows the result of a war."