OPEC feels the heat

finance.news.com.au By Nigel Wilson March 11, 2003

THE Organisation of Petroleum Exporting Countries, whose 124th Ministerial conference begins in Vienna today, is expected to stuggle to contain the runaway price of crude oil. War with Iraq is the dominant factor affecting prices. Low inventories coupled with high production from all OPEC members other than Iraq give the once all-powerful oil cartel little room to manoeuvre.

Last night, United Arab Emirates oil minister Obaid Bin Saif al-Nasseri said OPEC, which supplies one third of the world's oil, was operating at "almost full" capacity and would have "great difficulty" covering lost supplies from Iraq and Kuwait in the event of war.

This means OPEC cannot produce more oil to ease demand and lower crude oil prices, which have soared to highs not seen since the spike over $US40 a barrel during the 1990 Gulf War.

Crude prices have soared since January because of fears of a war on Iraq, which has the world's second-largest proven oil reserves after Saudi Arabia, and a general strike in Venezuela, which crippled production there.

The US Department of Energy estimates OPEC countries, excluding Iraq and Venezuela, hold between 2.1 and 2.5 million barrels a day of excess oil production capacity that could be brought online, the second lowest spare capacity level in the past three decades.

OPEC agreed in January to raise its combined output ceiling by 6.5 per cent to 24.5 million barrels a day to try to cool fevered world oil markets.

Oil from Iraq, one of the 11 OPEC members, is traded under a UN embargo that limits export sales. The Australian