OPEC may suspend oil quotas if U.S.-UK forces attack Iraq

OPEC may suspend oil quotas if U.S.-UK forces attack Iraq

Tanya Pang and Peg Mackey, Reuters, Singapore/Dubai/London

OPEC is likely to establish a war contingency plan at its March
11 meeting that would suspend oil output quotas once hostilities
start, senior officials and OPEC sources said on Friday.

But the producer group that dominates world oil trade is very
unlikely to lift output restrictions simply to contain prices
before the meeting, they said.

"The price now is not due to any shortage or fundamentals, its
psychological," said one.

While no formal proposal is yet in circulation, the sources
said ministers are expected to put a plan in place for a
temporary suspension of output limits at the Vienna gathering in
two weeks' time.

"There is no proposal for this yet," Indonesian Energy
Minister Purnomo Yusgiantoro told Reuters on Friday. "But people
are fully prepared to make up the production if there is no Iraqi
oil."

OPEC sources said the group probably would leave formal output
limits unchanged at 24.5 million barrels per day (bpd) and
prepare to suspend limits altogether if war erupts.

Also an option is the immediate suspension of quotas at the
March 11 gathering in a bid to calm prices in the final days
before any war.

Despite two production increases in the past two months, the
cartel was powerless on Thursday to prevent prices spiking to a
12-year high of nearly $40 a barrel for U.S. crude.

Speculators pushed prices to post-Gulf War highs as the run-up
to military action against Iraq coincided with a slump in
inventories of crude and products in the United States during a
bout of very cold winter weather. U.S. crude on Friday traded at
$37.09, down 11 cents.

OPEC's March meeting, scheduled months ago, comes just days
before Britain and the United States hope for a vote on a second
resolution at the United Nations authorizing war on Iraq.

Some in the group with no spare capacity are reluctant to give
free rein to Saudi Arabia, the only country with significant
volumes of unused capacity.

But all will want to avoid the need for a release of consumer
country strategic stocks, controlled by the Paris-based
International Energy Agency.

The IEA, along with its most powerful member the United
States, has said it will give OPEC the chance to fill any Iraqi
stoppage. The group is already stretched, compensating for
shortages from strike-hit Venezuela.

Both the IEA and the U.S. Department of Energy have said they
will wait to judge whether OPEC can handle an outage in war
before they decide to release emergency reserves.

Washington has the right to release reserves unilaterally from
the stocks it holds above the 90-day minimum of forward supply
required by IEA rules. The vast U.S. Strategic Petroleum Reserve
holds about another 50 days of supply.

Even with a free-for-all, OPEC does not have much extra oil to
deliver -- little more than Iraq's 1.7 million bpd of exports.
With only Saudi Arabia having access to significant extra
volumes, actual cartel supplies will depend on how much more
Riyadh decides to pump.

Many independent analysts estimate the Saudis are already
producing a million barrels a day more than their official 7.96
million bpd quota.

That leaves it with 1.5 million bpd to spare, with the UAE
able to call on a few hundred thousand barrels a day.