Momentum grows for OPEC to boost output

Momentum grows for OPEC to boost output

DUBAI (Reuters): Saudi Arabia appeared to have stepped closer yesterday in securing key backing for its proposal to let OPEC members open up the taps next year to meet world oil demand.

United Arab Emirates (UAE), a core Gulf Arab member of the 11- member cartel, indicated that it saw scope for a higher OPEC output ceiling in 1998 because of robust demand growth.

"The International Energy Agency (IEA) indicated there will be an increase in demand to 75 million barrels per day (bpd). I think it might justify some change in the OPEC ceiling," UAE Petroleum and Minerals Resources Minister Obaid bin Saif al- Nasseri told Reuters on Tuesday.

"The idea of increasing the ceiling should be determined by world demand and that will be discussed at the meeting," al- Nasseri said, referring to OPEC's six-day ministerial meeting in Indonesia later this month.

Sustained economic growth and moderate oil prices are expected to lift world oil use to 75.6 million bpd in 1998 from 73.8 million bpd this year, according to the Paris-based IEA, the West's energy watchdog.

Al-Nasseri's comments were in line with Saudi Oil Minister Ali bin Ibrahim al-Naimi who this month said a rise in OPEC's ceiling was justified because of a greater call on the group's crude in 1998.

"I think the UAE always tries to coordinate with GCC member countries on their oil business or policy," al-Nasseri said.

OPEC's Gulf Cooperation Council members -- Saudi Arabia, Kuwait, United Arab Emirates and Qatar -- account for more than 45 percent of the group's current estimated output of 27.8 million bpd and form a powerful negotiating block in the group.

There has been no major overhaul to OPEC's quota system for four years. Analysts have said an increase in the ceiling by some two million bpd to up to 27 million bpd would mainly be to the benefit of key Gulf Arab producers.

Riyadh's initiative had been prompted by a strategic need to recapture its share of the global oil market which has fallen more than half a percentage point since 1994 from 11.66 percent to 11.1 percent, according to IEA demand figures.

UAE's importance in OPEC and the larger oil market is that, together with Saudi Arabia and Kuwait, it is one of the few countries left with spare production capacity.

Under OPEC's current ceiling of 25.033 million bpd, the Gulf Arab state has an assigned quota of 2.161 million bpd though it has the ability to pump more than 2.5 million bpd, according to industry analysts.

As Japan's main oil supplier, the UAE would be in a position to lift crude exports to the Far East under a higher quota.

Riyadh would be looking at a new quota of anything up to 8.6 million bpd from its current eight million bpd if OPEC agreed to a pro-rata increase of the overall ceiling to 27 million bpd, analysts said.

Oil markets were weaker on Tuesday despite tensions between Iraq and the United Nations as traders faced the prospect of more oil coming onstream in 1998.

Traders and analysts are watching closely for reaction to the Saudi proposal from Iran and Venezuela -- the second and third largest producers in OPEC -- which will be critical to the passage of a higher ceiling.

Venezuela, the largest volumetric violator of its quota, would in theory gain nothing if the group increased its ceiling by around eight percent.

Caracas and Tehran have yet to declare their view on Riyadh's proposal. Qatar has said it would accept a decision for a higher ceiling though Indonesia has said it preferred a roll-over of the current, but widely ignored, ceiling.