OPEC unlikely to cover shortfall in crude from Iraq and Kuwait, oil minister says

www.accessatlanta.com The Atlanta Journal-Constitution: 3/10/03 By BRUCE STANLEY Associated Press

Vienna, Austria -- If war erupts in the Persian Gulf, OPEC will be hard-pressed to boost its oil production further to cover a simultaneous shortfall in crude exports from Iraq and northern Kuwait, an oil minister from one of the group's key members said Monday.

The United Arab Emirates, one of the few OPEC members with spare production capacity, is already approaching its limits, said the country's oil minister, Obaid bin Saif Al-Nasseri.

The Organization of Petroleum Exporting Countries must somehow weigh the impact of a possible U.S.-led war on Iraq when its representatives review their output quotas Tuesday at OPEC's headquarters in Vienna, Austria. Al-Nasseri's comments suggested that the United States and other major oil-importing countries would need to rely on their own strategic petroleum reserves as a cushion against a serious disruption in supply.

OPEC, which pumps about a third of the world's crude, raised its output target by 6.5 percent to 24.5 million barrels in January, in an effort to keep a lid on rising prices. Since then, worsening fears of a conflict have pushed prices to 12-year highs.

A war would almost certainly cut off Iraq's crude exports, currently totaling about 2 million barrels a day. With Venezuela's oil exports still recovering from a strike, OPEC would have to stretch to cover an interruption in Iraqi shipments.

However, Kuwait, which hosts most of the U.S. troops that are poised to attack Iraq, has said that in the event of war it would shut down its northern oil fields as a precaution against a possible Iraqi counterstrike. Such a step would reduce Kuwait's output by around 700,000 barrels a day, or about a third of its current production.

"It (would be) very difficult, I think," for OPEC to make up for lost barrels from both Iraq and Kuwait, Al-Nasseri told reporters as he arrived at a hotel in the Austrian capital. The United Arab Emirates' capacity of about 2.5 million barrels a day is already "about full," he added.

Aside from Saudi Arabia and perhaps Nigeria, most other OPEC members are already believed to be producing at their limits.

OPEC heavyweight Saudi Arabia, which by some estimates is pumping at a rate of 9 million barrels a day, could raise its output to 9.5 million barrels a day within a month and 10.5 million barrels a day within three months.

Importing countries have publicly expressed their desire for OPEC to maximize production if a war threatens supplies and causes prices to spike. U.S. Energy Secretary Spencer Abraham, due this week in Vienna on separate business, said last week that he might meet here with oil ministers from leading OPEC producers.

Some analysts have suggested that large importing countries and OPEC -- two often adversarial camps -- might be aiming to coordinate an increase in OPEC output with a release of crude from importers' strategic reserves in an effort to head off a war-induced disruption.

Iran's oil minister, Bijan Namdar Zangeneh, warned Monday that OPEC shouldn't make any decision that would look appear to support a U.S. invasion of Iraq, Iran's state-run IRNA news agency reported.

"OPEC must refrain from taking political measures," Zangeneh said, adding that "as far as the market fundamentals are concerned, there is no oil shortage in the market currently."

OPEC's biggest fear is that it might gear up to boost production just as seasonal demand starts to decline in the second quarter of the year. It worries that if Iraq were to resume exporting quickly after a war, the combination of surging supply and falling demand could trigger a price collapse.

April contracts of U.S. light, sweet crude were trading Monday at $37.80 a barrel in New York, up 2 cents from Friday's close. Brent crude futures for April delivery were up 6 cents at $34.16 in London.