OPEC to Consider Compromise on Supplies

OPEC meets this week seeking a compromise that guarantees world oil supplies in the event of war, without appearing to underwrite military action against Iraq.

The Western-friendly core of the Organization of the Petroleum Exporting Countries, led by Saudi Arabia, hopes to show at Tuesday’s meeting it can safely be counted on as the world’s energy reserve.

With crude nearing 1990 Gulf crisis highs of $41 a barrel, OPEC wants to prevent a price shock damaging to economic growth among the industrialized powers that buy its oil.

“It’s in Saudi self-interest to control prices,” said Gary Ross, head of New York consultancy PIRA Energy. “They have all the spare capacity and 28% of the world’s reserves. They know high prices kill economic growth and demand for their oil.”

Pundits say a U.S. assault on Baghdad, possibly just days away, might easily send prices rocketing from $38 already for U.S. oil, if only for a short period.

Saudi Arabia, home to the world’s only significant spare oil capacity, is leading an OPEC charge back to near-record production volumes after years of self-imposed limits.

Riyadh so far this year has jacked up supply by over a million barrels a day to more than 9 million to calm war fears and compensate for shortages caused by a long-running Venezuelan strike.

That leaves OPEC with little more left untapped than the equivalent of the 1.7 million barrels per day exported by Iraq.

Importing nations, in particular the U.S. where inventories are low, want the Saudis to squeeze out all they can, which they have made clear they are willing to do, with or without formal OPEC permission.

Riyadh has laid the groundwork for a bid to convince consumer countries that it can compensate for any war disruption without the need for importers to draw on their massive strategic reserves.