UPDATE:INTERVIEW: No OPEC Action Needed -Algeria Oil Min

sg.biz.yahoo.com Tuesday March 11, 2:26 AM (This updates an article from 1519 GMT with additional comments on stockpiles, prices and economic outlook.)

By David Bird

Select from the most reliable agencies Of DOW JONES NEWSWIRES

VIENNA (Dow Jones)--OPEC doesn't need to act now to cover potential lost supplies caused by an Iraq war, because strong output and expected lower demand will balance the market, Algeria's oil minister said Monday.

In an interview with Dow Jones Newswires, Chakib Khelil said he believes the Organization of Petroleum Exporting Countries can easily cover a supply loss of 3 million barrels a day, exceeding current Iraqi output of 2.4 million b/d.

For this reason, he said OPEC doesn't have to take action at Tuesday's output policy meeting but rather should plan to meet if and when more oil is needed after conflict in Iraq has begun.

Khelil said oil prices will rise on the start of war, though he believes there is a possibility of a collapse to below $22/bbl thereafter.

Concerns "might last a week or two weeks, but the prices will go down even without ... the use of (strategic) stockpiles." Khelil believes the U.S. would want to restore Iraq's oil output as quickly as possible and that Iraqi supplies could be cut off for as little as two weeks.

"We're going to know very fast whether we're going to have a long disruption or not," Khelil said.

"We've seen in the past that once it starts going below $22/bbl, it's very difficult to keep it (from dropping further)," he said, adding that when prices fell to $16-$17 in 2001, output discipline improved.

"If you're looking at the next three to six months, I think the concern is there," that OPEC could be putting too much oil on the market and prices could crash, he said.

A war would severely disrupt the world economy and therefore pull down potential growth in oil demand, exacerbating the competition between OPEC and non-OPEC exporters for market share, he said.

Khelil said current oil prices, trading just below their peaks from the 1990-1991 Gulf War, are inflated solely by fears related to war.

"Stocks are reasonably OK, supply is there," he said. "From that point ... there's no reason why prices are at this level. Once that uncertainty is eliminated, I think we should see a normal situation return and maybe prices at more reasonable levels."

Khelil said in the interview: "OPEC is here to make sure we're meeting the demand." After two increases in output quotas totaling 2.8 million b/d since January, there isn't any need for another increase now, even if war breaks out.

If further supply was needed from the group, it could meet after a war and decide to raise output, he said.

Has Hunch IEA Won't Unplug Its Oil Reserves

Khelil said because he believes OPEC can easily meet demand now, he doesn't think the International Energy Agency, the energy watchdog for members of the Organization of Economic Cooperation and Development, will at the start of a war unleash some of its strategic oil stockpiles.

"I don't think there is a need for them to use the supply" he said, adding it could be brought to market later if OPEC couldn't manage the market or if high prices were crippling economies. Emergency stockpiles are a "last resort" to guard against shortages, he said.

"After they've seen that OPEC has used all it can, maybe they'll come in. My hunch is they are not going to use it," he said.

"Stocks are OK. Venezuela is coming back up ... and we have already seen other countries taking the place of Venezuela," during the export cuts caused by an oil workers' strike there.

Khelil said he sees a second-quarter decline in demand of 2 million b/d.

"In terms of the fundamentals, I cannot explain why OPEC should do anything at this stage," Khelil said. "All the indicators show that we don't really need to give more oil."

"As you know, OPEC members are fast in increasing production, maybe slower in pulling out (cutting back) production," meaning a price collapse is possible, he said. "My feeling is ... that whatever happens, uncertainty isn't going to be relieved (quickly). My hunch is there's going to be a lot of tension."

• By David Bird, Dow Jones Newswires, david.bird@dowjones.com