Matching Iraqi oil output a tall order for Opec
Members are nearing capacity and US inventories will have to rise to keep prices down in case of war, analysts say
LONDON - Opec may struggle to replace output from Iraq should the nation's exports be halted by a war because most members are pumping near their limit, analysts said.
Opec, or the Organisation of Petroleum Exporting Countries, supplies a third of the world's oil.
Oil prices have surged 63 per cent in the past year and last week approached US$40, the highest since the 1990-91 Gulf War, after United States inventories fell to among the lowest levels in three decades.
Should an attack disrupt Iraqi supply, oil importers will have to tap emergency reserves to prevent soaring prices, analysts said.
'The problem is Opec is getting close to the limit of what it can do,' said Mr Julian Lee, a senior analyst at the Centre for Global Energy Studies in London, a think-tank founded by a former Saudi oil minister, Sheikh Zaki Yamani.
'Prices aren't going to come down much until US inventories start to rise.'
Analysts put Opec's spare capacity at about two million barrels a day, equal to 2.6 per cent of world output and less than Iraq's daily output of 2.5 million barrels.
Two million barrels is enough to meet daily demand in France, the world's fifth-largest economy.
All Opec members, except Iraq, agree to restrain oil supply to boost prices. The group raised quotas twice this year to fill a shortage caused by a strike in Venezuela and after a colder-than-normal winter boosted demand for heating fuel.
In 2000, Opec neared the limits of its spare capacity after the group raised production quotas and US prices surged to more than US$37 in September of that year. The present situation is similar, analysts said.
'If war starts with Iraq, there will have to be a significant release from the strategic reserves in the US to avoid an economic catastrophe,' said Mr Adam Sieminski, an oil strategist at Deutsche Bank.
The US and other industrialised countries hold inventories to alleviate supply shortages, reserves built to avert a repeat of the shortages seen during the 1973 Arab oil embargo.
US Energy Secretary Spencer Abraham has said the nation may use its 600-million-barrel strategic reserve to offset any 'severe' disruption in supply.
After Opec lifted quotas in the first two months of the year, and a Venezuelan strike eased, members other than Iraq are on track to produce 25.1 million barrels of oil a day last month, two million more than in January, said PetroLogoistics, a consultant group.
A recovery in Opec's oil capacity depends in part on Venezuela. Production there has risen to two million barrels a day, the government said. That is still two-thirds of its output in November.
--Bloomberg News