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.