OPEC sees output boost in event of war

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— OPEC will increase its oil production and possibly even suspend its current output quotas to keep the world supplied with ample supplies of crude in the event of a war with Iraq, the group's president said Monday.

Members of the Organization of Petroleum Exporting Countries can pump an additional three million to four million barrels of oil a day, and they are prepared to exhaust this spare production capacity if a war seriously disrupts exports from the Persian Gulf, said OPEC President Abdullah bin Hamad al-Attiyah.

OPEC's secretary general and oil ministers from Iran, Algeria and Venezuela played down the possibility that the group might suspend its output ceiling, currently set at 24.5 million barrels a day. Mr. al-Attiyah indicated he favours a greater degree of flexibility, without actually endorsing a temporary suspension.

"OPEC will do the most it can to avoid any shock in the market," he told reporters ahead of a policy meeting Tuesday at OPEC headquarters in Vienna, Austria.

OPEC, which pumps about a third of the world's crude, is already exceeding its target as members cash in on prices that have soared to 12-year highs amid fears of a war-induced supply shortage from Iraq.

A conflict would almost certainly disrupt Iraq's daily shipments of two million barrels, but at least one OPEC member — the United Arab Emirates — expressed doubts about the group's ability to cover a larger shortfall if fighting spreads beyond Iraq's borders.

"OPEC should not be blamed," Mr. al-Attiyah said as he arrived at a Vienna hotel. "We will do whatever we can, but this is in accordance to our capacity. When we reach a level that we cannot exceed, then we cannot do anything."

Mr. al-Attiyah said the market was already well supplied with crude. Saudi Arabia's oil minister Ali Naimi, speaking to reporters upon his arrival at a different hotel, agreed but gave no further details.

However, the United Arab Emirates' oil minister, Obaid bin Saif al-Nasseri, warned it would be "very difficult" for OPEC to pump enough oil to cover a simultaneous shortfall in crude exports from Iraq and northern Kuwait.

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.

Mr. 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 oil supply.

The United States and other major importing countries want OPEC to maximize production if a war threatens supplies and causes prices to spike. U.S. Energy Secretary Spencer Abraham, due in Vienna Tuesday on separate business, said in London that he might meet here with oil ministers from leading OPEC producers. Mr. al-Attiyah said Abraham had so far not requested to meet with him.

Some analysts have suggested that large importing countries and OPEC — two often opposing camps — might be trying 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.

Despite Mr. al-Attiyah's claim that OPEC has " three to four million barrels" in daily spare capacity, it was not clear how much higher the cartel could go in satisfying U.S. demands. Mr. al-Nasseri said the United Arab Emirates' capacity of about 2.5 million barrels a day was already "about full." 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 nine 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.

Yet, not all of OPEC's extra capacity is likely to be available right away. Mr. al-Attiyah's figure for OPEC's production potential appeared to include Venezuela's nominal capacity of 2.35 million barrels a day, yet Venezuelan exports are still recovering from a crippling strike and analysts have suggested it could be months before that country resumed pumping at its earlier levels.

OPEC raised its output target by 6.5 per cent in January, in an unsuccessful effort to keep a lid on rising prices. Prices for U.S. light, sweet crude have since reached a post-1991 peak of $39.99 (U.S.).

April contracts of U.S. crude were tradin.g Monday at $37.25 a barrel in New York, down two cents from Friday's close. Brent crude futures for April delivery closed 35 cents lower at $33.75 US in London.