OPEC prepared to increase oil supply

www.smh.com.au March 12 2003

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

The Saudi oil minister, Ali al-Naimi, said markets had enough oil for now. Officials from Qatar, Algeria, Nigeria and Venezuela said the group could increase output, and that the US had no need to use its emergency reserves to lower prices.

"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 yesterday.

Oil prices climbed to a 30-month high of $US34.55 a barrel in London yesterday, boosted partly by concerns that a US attack on Iraq may disrupt Middle East oil supplies. A three-month strike has also crippled crude oil exports from Venezuela, leaving US inventories at refineries and other businesses close to a 28-year low.

OPEC is to meet today in Vienna and has been split on suspending export quotas in the event of war.

OPEC Secretary-General Alvaro Silva said that was "not on the agenda". Iran's oil minister, Bijan Namdar Zanganeh, said 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 in February.

Not all ministers, however, are optimistic about potential increases. The Organisation of Petroleum Exporting Countries was operating at "almost full" capacity, United Arab Emirates Oil Minister Obaid bin Saif al-Nasseri said.

"We all know that OPEC is doing what it can," said Jan Stuart, head of research for global energy futures at ABN Amro in New York. "In the best of cases OPEC might just be able to fill the gap. The timing is awkward because of a demand increase from US refiners just around the corner."

US refiners usually complete maintenance and begin producing gasoline for their peak summer driving season over the next few weeks, which boosts crude oil demand.

Any move by OPEC to boost production may be tempered by concern about slack demand and the possibility of a glut after any conflict in Iraq.

"OPEC is a bit split," said Lawrence Eagles, an analyst at GNI-Man Financial in Belfast. "OPEC is paranoid that raising production is going to result in a second-quarter glut," he said. "What matters is what Saudi Arabia says they are prepared to do."

Bloomberg