IEA: OPEC Spare Oil Cushion Squeezed Hard

reuters.com Wed March 12, 2003 05:32 AM ET By Richard Mably

LONDON (Reuters) - Spare OPEC oil production capacity has been squeezed to just half the volume of Iraq's exports, exposing world markets as war looms, the International Energy Agency said on Wednesday.

In its monthly Oil Market Report, the IEA said that production increases over the past two months had left effective spare capacity in OPEC now of just 900,000 bpd on the 78-million-bpd global market.

"This is less than the potential loss of supply in the event of war in Iraq," said the Paris-based IEA, adviser on energy to 26 industrialized nations.

Iraqi supplies, running at 1.7 million barrels a day over the past month, are expected to shut should the United States launch an assault against Baghdad. In addition, Kuwait has said it may need to suspend as much as 700,000 bpd as a safety precaution during war.

"The market is heading into a period of heightened uncertainty with low stocks and limited spare production and shipping capacity," the IEA said.

The cold spell in the United States this winter cut commercial inventories by the end of January among its member countries to 50 days of forward demand, five days less than a year ago, the IEA said.

Its report calls into question OPEC's claims that it has some three million barrels a day to hand in case of a U.S. attack.

The cartel agreed at a meeting on Tuesday to keep production limits unchanged for the time being and said in a communique it would take prompt action if needed to ensure stable supplies.

The pledge was received well on oil markets and crude prices fell. U.S. light crude on Wednesday was off another 42 cents at $36.30 a barrel.

Most of OPEC's spare capacity is held by its biggest producer Saudi Arabia, but the IEA disputed Saudi claims to be able to pump 10 million barrels a day straight away.

The agency projected Saudi capacity at 9.5 million barrels daily in the second half of March, giving it just 400,000 bpd spare.

Riyadh was likely to lift capacity to 9.7 million bpd in April and 10 million bpd in May, it forecast, but still short of the 10.5 million bpd Saudi says it can pump at 90 days notice.

The IEA report said OPEC's spare cushion had shrunk from 3.3 million bpd in November. It estimated production rose by 1.5 million bpd in February to 27.18 million as Venezuela restored output after a strike and others opened the taps.