OPEC ministers say cartel is willing to raise output in event of Iraq war - Price of crude reaches 30-month high in London

www.sunspot.net From Wire Services Originally published March 11, 2003

VIENNA, Austria - OPEC, which produces a third of the world's oil, is ready to expand output in a bid to lower prices should a war with Iraq disrupt supplies from the group's third-largest member, ministers said yesterday.

The Saudi oil minister, Ali al-Naimi, said markets have enough oil for now. Officials from three cartel members, Qatar, Algeria, Nigeria and Venezuela, said OPEC can increase output losses to offset any losses from an Iraq war and saw no need for the United States to use its emergency reserves to lower prices.

Oil prices in New York rose as high as $38.20 a barrel yesterday - higher than they were in September 2000, the last time there was a major release from the U.S. Strategic Petroleum Reserve. In London, prices reached a 30-month high of $34.55 a barrel, amid war fears.

"We will do whatever we can to avoid a shortage," OPEC President Abdullah bin Hamad al-Attiyah, who is also Qatar's oil minister, told reporters in Vienna on the eve of the cartel's meeting here today.

Despite al-Attiyah's claim that OPEC has "3-4 million barrels" in daily spare capacity, it was not clear how much higher the cartel could go in satisfying U.S. demands.

Not all of OPEC's extra capacity is likely to be available right away. 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 three-month strike.

That strike has left U.S. inventories at refineries and other businesses close to a 28-year low.

Split over suspension

OPEC is split over whether to adopt a policy to suspend export quotas in the event of war. OPEC Secretary-General Alvaro Silva of Venezuela said such a suspension was "not on the agenda" at today's meeting.

Iran's oil minister, Bijan Namdar Zanganeh, told the nation's state news agency that OPEC "must refrain from taking any politically motivated measures" that would appear to support an invasion of Iraq.

Saudi Arabia, the world's biggest oil exporter, could produce as much as 10.5 million barrels a day within 90 days, Saudi officials say, which is about 1.7 million barrels a day more than it was producing, on average, in February, according to Bloomberg News estimates.

To be sure, not all ministers are optimistic about potential increases.

The Organization of the Petroleum Exporting Countries is operating at "almost full" capacity, United Arab Emirates Oil Minister Obaid Bin Saif al-Nasseri said in Vienna.

"OPEC is a bit split," said Lawrence Eagles, an analyst at GNI-Man Financial in Belfast, Northern Ireland.

Cartel 'is paranoid'

"OPEC is paranoid that raising production is going to result in a second-quarter glut. What matters is what Saudi Arabia says they are prepared to do."

Rilwanu Lukman, Nigeria's senior OPEC delegate, estimated the cartel's spare output capacity at 2 million barrels a day.

The United States and Britain are seeking support this week for a United Nations Security Council resolution that would authorize military action against Iraq if it hasn't rid itself of weapons of mass destruction by March 17.

With war possibly one week away, oil refiners need alternatives for Iraq's legal exports through a United Nations program, which averaged 1.9 million barrels a day in the last week of February.

The possibility that Kuwait's oil exports might be disrupted by a war with Iraq further stretches OPEC's ability to guarantee oil supplies, putting more pressure on consuming nations to release stockpiles to prevent shortages and runaway oil prices.

The reserves aren't to be used just to lower prices, said U.S. Energy Secretary Spencer Abraham. The U.S. holds about 600 million barrels in reserve to ensure supplies during any emergency.

"We are prepared and are very able to act quickly if a decision is made. We have not made that decision at this time," he said at a London news conference.

"We don't think the emergency reserves should be used to manipulate prices. There isn't a price trigger."

Last Friday, the United States and the International Energy Agency, which represents 26 consuming nations, said in a statement that they were prepared to tap emergency supplies in case of a shortage caused by a war with Iraq.