OPEC advised to ignore uncertainty over Iraq

OPEC advised to ignore uncertainty over Iraq

LONDON (Reuters): OPEC must ignore short-term uncertainty over
Iraqi exports and raise its official output ceiling at
ministerial talks in Jakarta next week, a senior Gulf Arab oil
industry source said on Tuesday.

The oil producer group should raise its ceiling to more
accurately reflect demand for its oil and improve the credibility
of its system of output quotas, the source said.

"If you factor in all the uncertainties like Iraq then you
will never get anywhere," said the source from a non-Saudi Gulf
OPEC country in an interview.

"Ignore the uncertainty. You are positioning yourself for the
long term."

"We want to link OPEC quotas to demand increases. That key long-
term signal has to be sent."

OPEC holds its biannual ministerial meeting in Indonesia next
week to set output levels for at least the first half of 1998.
OPEC linchpin Saudi Arabia has already indicated that it would
like to raise the group's ceiling to some 27 million barrels per
day (bpd) from the current official ceiling of 25.033 million
bpd.

Rampant quota violations have pushed the group's actual output
to beyond 27.5 million bpd with most industry observers blaming
much of the excess on overproduction by cash-pinched producers
like Venezuela and Nigeria who are already producing at capacity.

Much of the increased production made available by a rise in
the official OPEC ceiling would be enjoyed by just three
countries with spare capacity -- Saudi Arabia, Kuwait and the
United Arab Emirates.

The Gulf Arab source said he expected Venezuela would go on
increasing its oil production irrespective of whatever ceiling
was agreed in Jakarta.

But Venezuela could not then argue against Gulf Arab producers
raising their quotas. If they did "Saudi Arabia will just turn
around and say 'well we'll just take your approach then (and
overproduce)'," the source said.

"The Saudis are setting a new direction for the long term.
Something has to be corrected so that quotas match demand."
The source declined to speculate on the precise level at which
OPEC might set a new ceiling but said he tended to doubt it would
go as high as 28 million bpd.