www.dailytelegraph.news.com.au 13jan03

OPEC would make sure there were no oil shortages worldwide amid a strike in Venezuela and the threat of military action in Iraq, Saudi Oil Minister Ali al-Nuaimi said at the weekend. "I support making sure the market is well balanced. There will be no shortage of supply in the market when the market is well balanced," he said upon arriving in Vienna for yesterday's meeting of the Organisation of Petroleum Exporting Countries.

He refused to give figures for what is expected to be an increase in oil production in order to bring down prices in a market pressured by a six-week strike in Venezuela and the threat of a US-led war against Iraq.

The extraordinary meeting of OPEC at its headquarters in Vienna was expected to increase its official output quota by between 1 million and 2 million barrels per day to help make up the shortfall caused by the general strike in Venezuela, a major supplier to the US.

Venezuela accounts for about 13 per cent of US oil imports. The strike there has caused US oil stocks to fall at a time when Washington needs them to increase as it prepares for a possible war on Iraq.

If the US launches a war in Iraq before the Venezuelan strike ends, markets could be deprived of about 5 million barrels of crude oil per day, or even more if the war were to destabilise other Middle East producers.

But the size of the increase remains hard to predict, due to both the Venezuelan factor and the even greater potential for market destablisation that a possible US-led war in Iraq presents.

newsobserver.com, January 12, 2003 8:04AM EST By BRUCE STANLEY, AP BUSINESS WRITER

VIENNA, Austria (AP) - OPEC needs to compensate for a shortfall in oil exports from Venezuela, but it shouldn't change its official output target of 23 million barrels a day, the group's most influential oil minister said Sunday.

An increase in the target "would really flood the market," Saudi Arabian Oil Minister Ali Naimi said ahead of an emergency meeting the Organization of Petroleum Exporting Countries planned later in the day at its headquarters in Vienna. OPEC called the meeting last week hoping to calm fears of a supply crunch caused by an ongoing strike in Venezuela. The strike, launched Dec. 2 by political opponents seeking to oust President Hugo Chavez, has slashed the country's exports by about 2 million barrels a day. Venezuela is normally OPEC's third-largest producer and a major oil supplier to the United States.

OPEC pumps about a third of the world's crude supplies, which total 79 million barrels a day.

Naimi acknowledged that the Venezuelan strike has deprived the market of crude. "I care about what the market needs," he said.

But while he added that OPEC's production ceiling of 23 million barrels a day should remain unchanged, Naimi declined to say how OPEC should try to compensate for the missing Venezuelan oil.

One possible solution would be for Venezuela's OPEC partners to increase their own production to cover the shortfall until Venezuelan exports can resume.

Saudi Arabia accounts for the bulk of the group's spare production capacity and would stand to gain from any such temporary adjustment of output quotas within the overall target. Saudi Arabia's current output quota is 7.5 million barrels a day, but Naimi said his country could boost daily production to 10 million barrels within two weeks.

Still, OPEC members worry that if they do raise production, the additional barrels might hit markets just as seasonal demand starts weakening in the spring.

Neither Venezuelan Oil Minister Rafael Ramirez nor Ali Rodriguez, head of the country's state-run oil company, would say if he supported an increase in OPEC production. An unspoken concern was that any reallocation of quotas to end the shortfall might take some of the external pressure off Venezuela's opposition to end its strike.

Fears of a possible U.S.-led war against Iraq have added upward pressure to world oil prices. Iraq has the second-biggest oil reserves after Saudi Arabia, and there has been a steady buildup of U.S. troops in the Persian Gulf.

Crude prices surged in recent weeks but fell sharply in anticipation of OPEC's boosting production. On the New York Mercantile Exchange, February contracts of light, sweet crude futures fell 31 cents Friday to close at $31.68. On London's International Petroleum Exchange, February Brent crude ended at $29.67 a barrel, up 3 cents.

OPEC's price target is $22-$28 per barrel of its benchmark blend of crudes.

OPEC sources have said the Saudis were proposing to increase the group's daily output by 1.5 million barrels. Other members, including Algeria and Libya, have favored a smaller increase of 1 million barrels.

"We have to see what quantity is required," said Obaid bin Saif Al-Nasseri, oil minister for the United Arab Emirates, said late Saturday as he arrived at a Vienna hotel.

OPEC President Abdullah bin Hamad Al Attiyah said Venezuela's strike has caused "a little bit of a shortage," but he too refused to predict how much oil OPEC might add to the market to compensate.

"I've heard a lot of scenarios, a lot of numbers, but still we haven't reached the magic number," he said.

Any increase would take effect Feb. 1, Al Attiyah said. That means American importers would not see any fresh crude until at least mid-March because Saudi shipments take at least 40 days to reach U.S. ports.

The suddenness of OPEC's decision to call this meeting reflects its surprise at the deterioration in market conditions. Oil ministers for four of the group's 11 members were unable attend due to prior commitments. A fifth minister, Libya's Abdulhafid Mahmoud Zlitni, was unable to arrive Sunday because a sandstorm prevented his plane from leaving the Libyan capital, Tripoli.

sg.biz.yahoo.com Sunday January 12, 9:25 PM By David Bird Of DOW JONES NEWSWIRES

VIENNA (Dow Jones)--Is OPEC raising oil output, or just raising a ruckus that will quickly raise oil prices?

As ministers of the Organization of Petroleum Exporting Countries gather here Sunday for an emergency meeting aimed at assuring world markets of adequate oil supplies and sapping the strength from prices, the only thing raised so far has been the level of confusion.

Like the sandstorm that grounded the Libyan oil minister back in Tripoli, it's hard to see how OPEC can get through a political storm with Venezuela and bring out a credible agreement by the end of the day that will calm markets.

"How come you're here?," Saudi Arabia's Oil Minister Ali Naimi joked with a pack of familiar faces in the press corps on his arrival Saturday, noting that oil markets were closed over the weekend.

But the question is best turned back to the minister.

The well-rehearsed Naimi, of course, is before the assembled press to send a message of assurance that OPEC (read Saudi Arabia) won't allow any shortage of crude oil to occur in the market as a result of the 40-plus day Venezuelan strike that has crippled the oil industry.

Sparing crucial details, Naimi seeks to assure the market that, in fact, the Saudis (with a trickle from others) already have boosted output to cover the loss of some 2 million barrels a day of Venezuelan output.

By saying that Saudi Arabia can raise its output to 10 million b/d in two weeks' time, Naimi implies that output is up from the 8 million b/d level estimated in December. Best guess continues to be that the Saudis are near 8.5 million b/d now and may be heading higher. The clear message of a quick move to 10 million b/d - if needed - is meant to preempt a price spike as fears grow of a U.S.-led war with Iraq.

Not Output "Free-For-All," But "Free-For-Some"

Naimi made clear that OPEC's assessment last month that it needs to provide 25.5 million b/d of supply to the market in the near term, including supplies from Iraq, is still valid. Based on December output figures of around 24.9 million b/d, this suggests that about 600,000 b/d of new oil is already on the market from the Saudis, and a trickle from Algeria, Nigeria and the UAE, to cover the cut in Venezuelan output.

While it isn't a production "free-for-all," it's sort of a "free-for-some," as the other members, apart from Saudi Arabia, bring all their spare capacity to the market now, ignoring quotas.

Naimi said he wants to see an oil price "less than what it is today," but wouldn't give a level.

But OPEC will have to avoid falling into a trap of internal politics and the intricacies of its own faulty system of individual output quotas in trying to sell a convincing deal that cools off the market.

The first thing it needs to do to preserve credibility on supply is to deal with the incredible claims of Venezuela.

Many top OPEC officials say they don't put any faith in Venezuela's statement that it will have output fully restored by the end of February.

Before the problems hit in early December, Venezuela's output was near 3 million b/d, but estimates are complete guesses now, with many penciling in anywhere from 400,000 b/d to 800,000 b/d as the current figure.

But OPEC faces a political snag if, in setting short-term output policy, it appears to reject the claim of Hugo Chavez, the embattled Venezuelan president and top OPEC loyalist, of a pending return to normalcy in the oil sector.

Venezuela's Double-Barreled Approach

Chavez has dispatched the two top guns in Venezuela's oil industry, former OPEC Secretary General Ali Rodriguez, now the head of the spluttering state oil company, and Oil Minister Rafael Ramirez, to plead his case. The double-barreled approach of claiming output of an unlikely high volume of barrels was being tried out on Naimi this morning, with the Venezuelans said to be concerned that their barrels are about to be formally and unfairly divided up among the other members.

Despite Naimi's earlier insistence that OPEC wouldn't raise its 23 million b/d ceiling, as this would trigger a price fall, there remains talk that this isn't entirely ruled out, even though it becomes largely an academic matter.

To keep the Venezuelans happy, OPEC may need to give them their pro-rata share of a higher output ceiling, even though everyone knows full well they won't be able to produce to that level. Making the numbers work on paper, if not in reality, is an old OPEC trick, as member countries are loathe to surrender any portion of their quotas because of what it may mean for future quota adjustments.

The preferred approach, a senior delegate said, is essentially to put the Venezuelans aside, recognizing their temporary problems, and acknowledge that the other nine OPEC members with quotas would be pumping to cover the difference between Caracas' real output and its current 2.647 million b/d quota.

This would be on a temporary basis, and up for review at the group's already scheduled March 11 meeting.

The temporary deal - and in fact the de facto output rise already - makes the quota system somewhat moot and is likely to lead to even higher output.

A senior official from a country with little spare production capacity said he believes OPEC could pump as much as 26.5 million b/d in the current environment, or 1.6 million b/d over the December level, without harming prices, given market jitters.

Prices have been well above the top of OPEC's $22-$28 price band and OPEC fears the impact of current high, and potentially higher, prices on the global economy.

Still, OPEC's biggest task will be convincing the market that supply worries should be gone as a result of Sunday's deal, and adding to the price slide of about $1.40, or 4.2%, that came on news of the emergency talks.

"If the market believes there is even one barrel short of 1.5 million (b/d) coming to the market, the price will go up on Monday," the senior official said.

• By David Bird, Dow Jones Newswires; david.bird@dowjones.com

(David Bird is senior energy correspondent for Dow Jones Newswires.)

(BIRD ON OPEC will appear regularly during the course of this week's OPEC meeting.)

www.voanews.com VOA News 12 Jan 2003, 12:51 UTC

Leading oil producer Saudi Arabia says there is no oil shortage on world markets because of the ongoing labor unrest in Venezuela.

Speaking after an emergency meeting of OPEC ministers in Vienna, Saudi Oil Minister Ali al-Naimi said the 11-nation cartel would not allow a global shortage to occur.

OPEC officials say the cartel already has taken steps to offset the production shortfall of two million barrels a day by Venezuela, which is the world's fifth largest oil producer, where a six-week-old strike has crippled oil exports.

However, Mr. al-Naimi ruled out raising the carter's overall production limit of 23 million barrels a day, saying an increase would flood the world oil market.

The Organization of Petroleum Exporting Countries convened Sunday's meeting, saying it wants to prevent disruptions in global oil supplies because of the strike in Venezuela and the possibility of war in Iraq, which also is an OPEC member.

Global oil prices last week shot up to a two-year high of $33 per barrel, well above OPEC's target range of $22-28 per barrel.

The United States has been urging the cartel to boost production to offset disruptions in Venezuela's oil exports.

Before its labor troubles, the South American nation was supplying 13 percent of U.S. oil imports. Oil production in Venezuela has fallen to virtually nothing since a general strike against the country's president, Hugo Chavez, began six weeks ago.

Algeria, Indonesia, Saudi Arabia, Nigeria, Libya, Iraq, Iran, Kuwait, United Arab Emirates, Venezuela and Qatar make up OPEC.

Some information for this report provided by AP, AFP and Reuters.

news.ft.com By Carola Hoyos in Vienna Published: January 12 2003 13:08 | Last Updated: January 12 2003 13:08

Saudia Arabia has so far failed to rally its Opec colleagues around formalising an increase in the cartel’s oil production quota.

Instead Opec members have already begun to informally fill the supply gap left by the shut down of Venezuela’s oil production,  oil ministers said ahead of their meeting to be held in Vienna on Sunday.

Ali Naimi, Saudi Arabia’s oil minister said today: “There is not a shortage [of supply] in the international market, there is only a shortage from Venezuela, probably of two million barrels per day,” he said. “The feeling of 23m b/d, we will leave it.”  

It is still unclear whether Opec will announce new more generous quotas for the nine members who could, at least in theory, help fill the 2-2.5m b/d gap left by a strike against Venezuela’s president which has crippled the country’s oil industry since the beginning of December.

Venezuela’s strike and worries about a possible war in Iraq have driven oil prices to more than $30 per barrel well above Opec’s ideal range of $22-$28.

Opec’s inability to send a strong message to the oil market that it will increase supply will likely dampen any bearish effect on prices that a concrete decision could have had, analysts said.

Much of the increase to fill the hole left by Venezuela has already begun, Opec sources said, but some extra production is still expected to hit the markets in the coming weeks. However incremental barrels from the Middle East would take at least 45 days to reach the US, the market most effected by the loss of Venezuelan exports.

Riyadh, in the past days, had tried to persuade Opec members to increase the cartel’s 23m b/d quota by 1.5-2m b/d, but ran into resistance from countries worried about the seasonal drop in demand in the first two quarters of each year and the subsequent dangers of significant depressed prices if Venezuela’s production was restarted and a US military action against Iraq were delayed. Many producers were also concerned about losing market share to Saudi Arabia, which is the Opec member most able to increase its production.    Venezuela, meanwhile, raised objections over it possibly losing its quota share -- even temporarily -- in spite of the fact that it is unable at this point to meet it.    Ali Rodriguez, head of Petroleos de Venezuela (Pdvsa) Venezuela’s state-owned oil company, said today that the country’s oil output would return to pre-strike levels by the end of February.

“We will give Opec certainty that we will recovery operations... by the end of February,” Mr Rodriguez said. But analysts doubted the validity of the statement saying that the strike showed little sign of coming to an end and even once it did, it would be months before Venezuela could fully restore its production.