Amid possibility of war, OPEC prepares for debate on oil production

Friday, September 13th 2002, 12:00 am

By: News On 6

TOKYO (AP) _ With war fears unsettling world oil markets, analysts said consumers can expect no relief from high prices when OPEC meets next week in Japan _ even if output levels are boosted.

The Organization of Petroleum Exporting Countries has pledged to keep markets stable and not use oil as an ``economic weapon'' in the event of a U.S. attack on Iraq.

But at its Sept. 19 meeting in Osaka, Japan, OPEC ministers are likely to clash on whether now _ before an attack _ is the time to temper prices with a boost in output.

``You have two factions in OPEC. One in favor of raising production, the other against raising production,'' said Steve Turner, an oil analyst with Commerzbank in London. ``There could be some fireworks.''

The United States, the world's biggest oil importer, is seen as seeking a production boost from OPEC, the 11-nation cartel pumping roughly a third of the world's crude.

Washington hopes an increase would steady energy markets if it goes to war against Iraq. Analysts said that a fear of conflict has already boosted oil prices by $2 to $4 a barrel.

A war in Iraq, which straddles the world's second-largest proven oil reserves, is likely to drive prices higher. But a spike would likely be brief because OPEC's other members are estimated to have at least 5 million barrels a day in excess production capacity.

But the urgency for OPEC to act has already been undercut by a slight dip after Thursday's speech to the United Nations by President Bush.

Light sweet crude for October delivery plunged 92 cents to settle at $28.85 a barrel in New York after Bush urged Iraq to comply with U.N. resolutions about reining in weapons of mass destruction.

Excluding Iraq, OPEC was producing between 1.5 million and 2 million barrels a day above its own quota in August, analysts said.

Another increase in production could put the cartel at risk of a sudden price collapse if a war doesn't happen.

Among the OPEC members, Venezuela and Indonesia are expected to push for no change in output. They have little to gain from a production increase because, analysts said, they're pumping out as much oil as they can.

On the other side is Saudi Arabia, the world's largest crude producer. It's expected to lean toward a production increase for fear that oil prices bumping against $30 a barrel may hamper its relations with Washington.

Instead of raising actual production, what's more likely in Osaka is a decision by OPEC to raise its production quota by approximately 1.5 million barrels a day. That would bring OPEC's stated output in line with actual output.

But such a move would likely have little effect on overall supply or prices.

``That's just a paper change,'' said Leonidas P. Drollas of the London-based Center for Global Energy Studies. ``The war premium must be weighing on their minds, which would tend to make them a little more cautious and not overproduce further.''

The International Energy Agency, a Paris-based industry watchdog group, warned Wednesday that more volatile oil prices will loom this winter if OPEC refuses to boost crude production as major importing countries head into the peak heating oil season.

Average monthly oil prices have risen steadily from December to August, by 47 percent in New York and 43 percent in London, according to IEA data.