news.independent.co.uk By Leo Lewis 12 January 2003

With the US on a war footing in Iraq, Opec is building an emergency reserve of 150 million barrels of crude oil.

The secret store is the first of its kind to be organised centrally by the 11-member cartel. Its creation is being taken by energy analysts as a sign that Opec is rattled – both by the prospect of war in the Middle East and by the escalating problems in Venezuela, which have pushed the price of oil above $31 a barrel.

The reserves, whose details remain a closely guarded secret, will be spread between about seven of the members and held by the individual countries. Saudi Arabia is understood to be the principal contributor, with Kuwait and Iran both setting aside large volumes. Oil industry insiders believe the reserves would be tapped in the event of a war-related disruption of supplies, but might also be dipped into if the Venezuelan crisis lasts beyond February. Output from the South American country – also an Opec member – is down to about 8 per cent of normal levels.

The topic of Opec's strategic reserve is expected to be under discussion at today's emergency meeting of the organisation in Vienna. The nightmare scenario for Opec is one in which both Iraqi and Venezuelan production go off-line at the same time. Current thinking is that such a situation would trigger use of the strategic reserves held by the US, EU and Japan, but the existence of an Opec-run reserve might avoid that.

Under International Energy Agency rules, countries that consume large quantities of oil are obliged to hold strategic reserves amounting to 90 days' worth of imported product. The Bush administration recently called for its 700 million barrel reserves to be filled to the brim, and other countries are understood to have followed suit. As a net exporter of crude, Britain is not bound by the same rules.

news.independent.co.uk By Leo Lewis 12 January 2003

With the US on a war footing in Iraq, Opec is building an emergency reserve of 150 million barrels of crude oil.

The secret store is the first of its kind to be organised centrally by the 11-member cartel. Its creation is being taken by energy analysts as a sign that Opec is rattled – both by the prospect of war in the Middle East and by the escalating problems in Venezuela, which have pushed the price of oil above $31 a barrel.

The reserves, whose details remain a closely guarded secret, will be spread between about seven of the members and held by the individual countries. Saudi Arabia is understood to be the principal contributor, with Kuwait and Iran both setting aside large volumes. Oil industry insiders believe the reserves would be tapped in the event of a war-related disruption of supplies, but might also be dipped into if the Venezuelan crisis lasts beyond February. Output from the South American country – also an Opec member – is down to about 8 per cent of normal levels.

The topic of Opec's strategic reserve is expected to be under discussion at today's emergency meeting of the organisation in Vienna. The nightmare scenario for Opec is one in which both Iraqi and Venezuelan production go off-line at the same time. Current thinking is that such a situation would trigger use of the strategic reserves held by the US, EU and Japan, but the existence of an Opec-run reserve might avoid that.

Under International Energy Agency rules, countries that consume large quantities of oil are obliged to hold strategic reserves amounting to 90 days' worth of imported product. The Bush administration recently called for its 700 million barrel reserves to be filled to the brim, and other countries are understood to have followed suit. As a net exporter of crude, Britain is not bound by the same rules.

www.morningstar.ca 11 Jan 03(6:09 PM) |  E-mail Article to a Friend By Richard Mably and Andrew Mitchell

VIENNA (Reuters) - OPEC producers prepared on Saturday for emergency talks that will decide how far to open the oil taps to prevent a price shock as war looms in Iraq.

Cartel ministers, meeting at 1130 GMT on Sunday, must also plug a gap in supplies from the group's third biggest producer Venezuela, hit by a six-week-old general strike.

Arriving in Vienna, influential Saudi Oil Minister Ali al-Naimi sent a strong message to world oil markets, where prices recently hit a two-year high, above $33 a barrel, for U.S. crude.

"There is a shortage. It is significant," said Naimi of the Venezuelan outage. "I can assure you that there will be no shortage." He predicted that oil prices "will be lower" after Sunday's meeting.

OPEC is under pressure from the United States to stop prices running out of control ahead of a possible U.S. attack against Baghdad, that some fear could be just weeks away.

Washington is worried that sluggish economic growth, having failed to respond to a series of interest rate cuts, could be snuffed out by another jump in energy costs.

"With oil stocks in the United States already close to estimated minimum operating levels, OPEC has been forced to act," said Washington's Petroleum Finance Company.

"The combination of the twin disruption scenarios represents a political nightmare of sorts for OPEC, which will be accused of having failed its mission if prices climb above $35 a barrel."

U.S. Energy Secretary Spencer Abraham, who normally avoids making public comment on OPEC, said on Friday he had been in contact with producers. He said they were readying a "substantial increase."

HOW MUCH?

Ministers must judge the volume of additional crude required to contain prices inside their preferred $22-$28 target range.

Kuwaiti Oil Minister Sheikh Ahmad al-Fahd al-Sabah has said the group is discussing a rise of 1.0-1.5 million barrels a day, up 4-7 percent on limits now of 23 million bpd.

Saudi Arabia, in control of most of the world's spare production capacity, wants an increase at the top end of the range.

Most independent estimates are that it is already pumping just over eight million bpd. A Gulf official familiar with Saudi policy said it could reach 9-9.5 million immediately and 10 million at two weeks notice. Full capacity of 10.5 million bpd can be reached in 90 days.

Others including the UAE, Iran, Algeria and Libya are fearful that an end to the Venezuelan strike could push prices sharply lower and prefer just one million barrels daily.

Whatever the formal decision, Saudi is likely to raise flows by as much as it thinks is necessary for keeping crude under $30 -- to smooth diplomatic relations with Washington and prevent accusations in the Arab world that it is benefiting from war.

Riyadh sees its long-term interest in keeping prices under control to foster the world economic growth that fuels demand for its oil.

"We want to make sure prices aren't too high for the economy or for oil demand. We want to avoid politics, this is business," said a Gulf official.

Already Saudi customers and shippers report preparations for extra deliveries, particularly to the United States, which relies on Venezuela for 13 percent of its imports.

Sunday's meeting will have to address the delicate issue of how to divide additional supply allocations.

Some may want Venezuela excluded from a new deal, leaving nine members of OPEC to share out the incremental supply, giving those with spare capacity greater licence to lift production.

Caracas is sending a powerful delegation headed by Oil Minister Rafael Ramirez and state oil company head Ali Rodriguez to argue against that strategy. It does not want to see its share of the OPEC pie shrink now for fear it fails to recover its full stake in the future.

Venezuela is expected to get backing for a request that new quotas be given temporary status, making it clear that previous limits be restored once its output recovers.

news.bbc.co.uk Sunday, 12 January, 2003, 00:28 GMT Venezuela's strikes have hit exports very badly

By Andrew Walker BBC economics correspondent in Vienna The oil producers' organisation Opec holds a meeting in the Austrian capital on Sunday, which is expected to agree an increase in production.

I support making sure the market is well-balanced

Ali al-Nu'aymi Saudi Oil Minister

The emergency meeting of ministers and officials from the organisation's 11 member countries was prompted by a sharp rise in prices, caused by the continuing strike in Venezuela's oilfields.

Since mid-December the price of crude oil has been above the top of Opec's target range of $22 to $28 a barrel.

The meeting is widely expected to agree that Opec's other members should increase their production to compensate for the Venezuelan shortfall.

Prices up

Saudi Arabia's Oil Minister, Ali al-Nu'aymi, said when he arrived here in Vienna, that there is now a shortage of oil.

The reason is the strike in Venezuela, normally Opec's third largest producer.

But its output has fallen by around four-fifths and the shortfall has driven prices up.

"I can tell you I support making sure the market is well-balanced," said Mr al-Nu'aymi.

"There will be no shortage of supply in the market when the market is well-balanced," he said.

Low stocks

The prospect of a deal to increase production has already brought prices down slightly, and an agreement could take crude oil back into Opec's target range.

But it will not lead to a sharp fall.

Stocks of oil in consuming countries are low, and there is always the prospect of a war in Iraq, which would push prices higher again.

It is only a few weeks since Opec agreed to cut production to prevent a feared price fall later this year.

That agreement reflected their mistaken belief that the strike in Venezuela would be very brief.

OPEC Ministers Prepare to Avert Shortage VOA News 11 Jan 2003, 20:00 UTC

Saudi Arabia's oil minister says the OPEC cartel will act to prevent disruptions in global petroleum markets, as the possibility of war with Iraq looms and Venezuela's labor unrest continues.

Minister Ali al-Naimi said there will be no shortage and that the price of oil, now at a two-year high above $33 per barrel, will fall after OPEC ministers hold an emergency meeting Sunday in Vienna.

The ministers from OPEC's 11 member nations must determine how much additional crude oil to pump into global markets in order to maintain a price within their target range of $22 to $28 a barrel.

The United States has been urging the cartel to boost production to make up for disruptions in Venezuela's oil exports. In normal times, Venezuela supplies about 13 percent of U.S. oil imports, but those exports have fallen to a virtual standstill during Venezuela's six-week general strike.

Washington is also concerned that potential war against Iraq could cause further disruptions in the global oil supply.

OPEC Holds Emergency Meeting to Discuss Production Increase Melaine Sully - Vienna 11 Jan 2003, 20:32 UTC

OPEC headquarters, ViennaThe Organization of Petroleum Exporting Countries holds an emergency meeting in Vienna Sunday to discuss an increase in the production of crude oil. Delegates from the 11 member nations of OPEC gather for the second time in a month at their Vienna headquarters.

The cartel is expected to increase its official output quota, some officials speculate, by one million, or 1.5 million barrels per day, to make up the shortfall caused by a six-week-old strike in Venezuela, a major supplier to the United States. Saudi Arabia wants a bigger increase, but Algeria and Libya are pressing for a million barrel per day increase, which would represent about a four percent rise over the current output of 23 million barrels per day.

Any increase would become effective from February 1, and would be reviewed at the next regular meeting of the OPEC ministers on March 11.