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.

economictimes.indiatimes.com REUTERS[ TUESDAY, MARCH 11, 2003 10:07:45 AM ]

NEW YORK: World oil prices dipped on Monday as the United States and Britain struggled to convince wavering nations to back a United Nations resolution that would pave the way for war on Iraq.

Prices fell despite signs that the Opec oil producer cartel, which meets on Tuesday, was backing away from plans to suspend formal limits on oil production should the United States attack Iraq.

US light crude slipped 51 cents to $37.27 a barrel, below its recent peak of $39.99. Oil prices set a record high of $41.15 a barrel during the 1990-91 Gulf crisis.

London benchmark Brent for April fell 35 cents to $33.69 a barrel, below a session high of $34.55, its highest level since November 2000.

Oil prices are up 20 percent this year on concerns that a war in Iraq could upset oil supplies from West Asia.

A draft UN resolution proposed by the United States and Britain has set a deadline of March 17 for Iraq to satisfy all Security Council resolutions that it was cooperating fully with disarmament demands, or face war.

A vote could come assoon as Tuesday. The United States and Britain stepped up efforts to win support for the declaration while veto-wielding members France, Russia and China are opposed to military action.

US officials said on Monday that Iraq appears to have placed explosives at the Kirkuk oil fields in northern Iraq to destroy them if a US invasion occurred. An Iraqi oil ministry official later denied the claim.

More Serious

The prospect of disruption of West Asian oil supplies in the event of war is all the more serious in that it follows a strike that has crippled Venezuela's oil industry.

The Venezuelan stoppage and strong heating demand due to a severe northern winter have helped to reduce stocks in the United States, the world's biggest oil consumer, to the lowest levels since the Arab oil embargo of the mid-1970s.

Opec powers Saudi Arabia and Kuwait had hoped to find backing at a Tuesday meeting of the Organization of the Petroleum Exporting Countries to set aside production quotas if war prevented Iraqi deliveries.

Fellow Opec member Iran condemned the plan. "Iran will not back politically motivated decisions," said Iranian Oil Minister Bijan Zanganeh. Opec should not adopt any policy that implies support for a "US military assault against one of Opec's member states," he said.

Iran and others also fear a seasonal fall in demand in the second quarter could coincide with the end of a short war and send prices spiralling lower.

Saudi Arabia -- which holds the majority of Opec's spare capacity -- is trying to convince the United States and other importers that Opec can compensate for war stoppages without the need for a coordinated release from emergency stockpiles in consumer countries.

US Energy Secretary Spencer Abraham said the United States was prepared to release crude from emergency reserves in the event of supply disruption, but a decision to release stocks would be made only in the event of a supply emergency.

Behind the scenes, Saudi Arabia has made clear that it is prepared to pump at maximum levels, with or without Opec backing. Riyadh has lifted output sharply in recent weeks and is now pumping more than 9 million barrels daily of its 10.5 million bpd capacity.

www.nytimes.com By NEELA BANERJEE

VIENNA -- Facing the looming possibility of war in Iraq and the continued shortfall of oil exports from Venezuela, the Organization of the Petroleum Exporting Countries is expected to announce at its meeting here today that it will continue to supply as much oil as the markets need, essentially an affirmation of what it has been doing for months now, although with limited success. Advertisement

Most of the 10 voting OPEC members are now pumping as much oil as they can, but prices have stayed stubbornly high. In New York, crude oil for April delivery fell 51 cents yesterday, to $37.27 a barrel.

But even if OPEC does nothing today, analysts here said, the steps it has taken so far amount to an important political and economic victory. They noted that prices would have been even higher had OPEC not increased output to compensate for the loss of Venezuelan oil production and then to calm a market jittery about a possible halt in Iraqi exports, in the case of war. Recently, consuming regions, led by the United States and European countries, gave the cartel a vote of confidence by announcing that they would allow OPEC to make up for any possible shortfall in supplies if war broke out before they released oil from their strategic stockpiles.

At a time when many in the United States are calling for greater imports of oil from outside the Middle East, OPEC's pre-emptive action has shown that the Persian Gulf states, particularly Saudi Arabia, are the only ones with the spare production capacity that can be called on to dampen prices, analysts said.

"This is Saudi Arabia's crowning glory in its short-term relations with the United States," said Raad Alkadiri, a director at PFC Energy, a Washington consulting group. "They have shown that they have the willingness to keep spare capacity that becomes of enormous strategic importance to Western markets. Despite the stresses and strains in their relations with the United States, they have shown that they are willing to act to keep prices under control."

Yesterday, on the eve of the official meeting, members debated publicly about the need to increase production officially to the maximum by abrogating production quotas, with Iran insisting there was no need to do so. But analysts said that talk of quotas was only a formality, given that OPEC has pledged to provide the market with the oil it needs to stabilize prices. That may involve producing full-tilt, depending on the progress of a possible war — something the cartel has never done before, those analysts said.

"This is the first time the upper limits of their production band will be tested," said Yasser Elguindi, a managing director at Medley Global Advisors, a New York consulting group. "And we don't know exactly what the outcome might be. With everyone going flat-out, they may be able to squeeze 50,000 barrels here or there, but it will be at the margins."

Analysts say that the only OPEC members with any room to produce more oil are Saudi Arabia, and, to a far lesser extent, Kuwait and the United Arab Emirates. OPEC members do not disclose their production statistics, but analysts think that Saudi Arabia is already producing 9.2 million to 9.5 million barrels a day, or about 1.5 million barrels more than its official quota. If need be, the Saudis could increase output by an additional million barrels a day over several weeks, the analysts said.

Still, it takes about six weeks for oil from the Persian Gulf to reach the United States, which may explain why inventories of crude oil and petroleum products have remained low. That trend, in turn, has helped keep prices high. But demand for oil traditionally falls in the spring. While analysts said they thought the persistent cold weather in the northern United States might buoy oil prices, they nonetheless expect demand to slacken somewhat in the weeks to come, which might help curb the rise in prices.

Exports of oil from Venezuela have resumed and are now 1.5 million to 2 million barrels a day, analysts estimated, which is still less than the 2.5 million barrels the country shipped before a general strike began in December against the government of President Hugo Chávez. But analysts warned that Venezuela would remain a far from reliable exporter until its domestic political disputes are resolved. Moreover, the shutdown of the oil fields at the beginning of the strike may have led to a permanent loss of up to 500,000 barrels of production capacity, analysts said, because some of the country's oil production is hard to revive once it has been shut in.

"The reality is that Venezuela is not going to come back to prestrike levels," Mr. Elguindi said. "Its production will probably be erratic. I think people underestimated the impact of its shutdown on markets, and that impact could last through the end of the year."

Most analysts think that OPEC, at maximum capacity, could make up for the inconsistent Venezuelan production and the loss of about two million barrels of Iraqi exports, legal and otherwise. But that leaves no margin for anything else that might go wrong, they warned. What if coming elections in oil-producing Nigeria touched off unrest? What if insurance on oil tankers to Kuwait rose to such prohibitively expensive levels that loading of some oil there stopped for a time? Or Kuwait itself shut down production to the north, near the border with Iraq?

Obaid bin Saif al-Nasseri, the oil minister for the United Arab Emirates, told reporters here yesterday that it would be "very difficult" for OPEC to make up for a halt in Iraqi oil exports and a simultaneous halt of oil production in northern Kuwait.

If OPEC cannot cover for a shortfall in the market, then the United States and other consuming countries would probably release oil from their strategic stockpiles. The United States has about 600 million barrels of oil in its Strategic Petroleum Reserve, and the Bush administration has come under great pressure to release some of it to rein in prices, which it has flatly refused to do.

"From the United States' perspective, they want oil producers to supply as much as they can, because once the government taps the reserve, it can't go to it again if things get even worse," Mr. Elguindi said. "It becomes the measure of last resort for the country."

www.startribune.com Bruce Stanley, Associated Press Published March 11, 2003 OIL11

VIENNA -- OPEC will increase production and possibly even suspend its output quotas to keep the world supplied with enough crude in the event of war with Iraq, the group's president said Monday.

Members of the Organization of Petroleum Exporting Countries can pump 3 million to 4 million more barrels of oil a day and are prepared to exhaust this spare production capacity if war seriously disrupts Persian Gulf exports, said OPEC head 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 of 24.5 million barrels a day. Al-Attiyah, OPEC's president, indicated that he favors more 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 today at OPEC headquarters in Vienna.

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 2 million barrels, but at least one OPEC member -- the United Arab Emirates -- expressed doubt about the group's ability to cover a larger shortfall if fighting spreads beyond Iraq.

"OPEC should not be blamed," Al-Attiyah said. "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."

Al-Attiyah said the market was well supplied with crude, but 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, where 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.

Al-Nasseri's comments suggested that the United States and other oil-importing countries would need to rely on their own strategic petroleum reserves as a cushion against a serious disruption in supply.

The United States and other big importers want OPEC to maximize production if a war threatens supplies and causes prices to spike. Energy Secretary Spencer Abraham, due in Vienna today on separate business, said in London that he might meet with leading OPEC oil ministers. 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 Al-Attiyah's claim that OPEC has 3 million to 4 million barrels in daily spare capacity, it was not clear how much higher the cartel could go in satisfying U.S. demands.

www.chron.com March 10, 2003, 8:35AM Associated Press BC-OPEC Meeting,0678 By BRUCE STANLEY AP Business Writer

OPEC unlikely to cover shortfall in crude from Iraq and Kuwait, oil minister says

VIENNA, Austria (AP) -- If war erupts in the Persian Gulf, OPEC will be hard-pressed to boost its oil production further to cover a simultaneous shortfall in crude exports from Iraq and northern Kuwait, an oil minister from one of the group's key members said Monday.

The United Arab Emirates, one of the few OPEC members with spare production capacity, is already approaching its limits, said the country's oil minister, Obaid bin Saif Al-Nasseri.

The Organization of Petroleum Exporting Countries must somehow weigh the impact of a possible U.S.-led war on Iraq when its representatives review their output quotas Tuesday at OPEC's headquarters in Vienna, Austria. 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 supply.

OPEC, which pumps about a third of the world's crude, raised its output target by 6.5 percent to 24.5 million barrels in January, in an effort to keep a lid on rising prices. Since then, worsening fears of a conflict have pushed prices to 12-year highs.

A war would almost certainly cut off Iraq's crude exports, currently totaling about 2 million barrels a day. With Venezuela's oil exports still recovering from a strike, OPEC would have to stretch to cover an interruption in Iraqi shipments.

However, 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.

"It (would be) very difficult, I think," for OPEC to make up for lost barrels from both Iraq and Kuwait, Al-Nasseri told reporters as he arrived at a hotel in the Austrian capital. The United Arab Emirates' capacity of about 2.5 million barrels a day is already "about full," he added.

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 9 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.

Importing countries have publicly expressed their desire for OPEC to maximize production if a war threatens supplies and causes prices to spike. U.S. Energy Secretary Spencer Abraham, due this week in Vienna on separate business, said last week that he might meet here with oil ministers from leading OPEC producers.

Some analysts have suggested that large importing countries and OPEC -- two often adversarial camps -- might be aiming 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.

Iran's oil minister, Bijan Namdar Zangeneh, warned Monday that OPEC shouldn't make any decision that would look appear to support a U.S. invasion of Iraq, Iran's state-run IRNA news agency reported.

"OPEC must refrain from taking political measures," Zangeneh said, adding that "as far as the market fundamentals are concerned, there is no oil shortage in the market currently."

OPEC's biggest fear is that it might gear up to boost production just as seasonal demand starts to decline in the second quarter of the year. It worries that if Iraq were to resume exporting quickly after a war, the combination of surging supply and falling demand could trigger a price collapse.

April contracts of U.S. light, sweet crude were trading Monday at $37.80 a barrel in New York, up 2 cents from Friday's close. Brent crude futures for April delivery were up 6 cents at $34.16 in London.