- The Washington Times - Monday, December 9, 2002

LONDON (AP) OPEC is expected this week to insist that its members tighten their taps to help prevent a glut that could send crude prices tumbling.
Saudi Arabia de facto leader of the Organization of the Petroleum Exporting Countries will argue at the same time for the group to increase the level of its targeted output, several analysts said. This would amount to moving the goal post for OPEC's production to align it more closely with the amount of crude the group is actually producing.
Together, these two seemingly contradictory steps may represent OPEC's best chance for keeping crude prices stable and within its desired range of $22 to $28 a barrel when the cartel's oil ministers meet Thursday in Vienna, Austria.
"It's all to do with credibility. At the moment, when you have 3 million barrels of overproduction, people don't have a whole lot of faith in the quota system," said Lawrence Eagles, head of commodity research for London brokerage GNI Ltd.
The threat of a U.S.-led war with Iraq and the drift toward revolution in Venezuela complicate the ministers' task.
Iraq has the world's second-biggest oil reserves, and fears abound that a military campaign against the Baghdad government would paralyze Iraqi oil exports and possibly disrupt shipments from elsewhere in the Gulf. Fellow OPEC member Venezuela, a key source of crude for the United States, plunged further into turmoil last week when employees of the national oil company went on strike to support compatriots calling for the ouster of President Hugo Chavez.
However, such political risks are out of OPEC's control. Delegates are likely to focus instead on a push-me-pull-you strategy of curbing excess production while increasing members' output quotas.
January contracts of light, sweet U.S. crude were 28 cents a barrel lower Friday at $27.01 in trading in New York. Contracts of North Sea Brent crude for January delivery fell 33 cents a barrel to $25.47 in London.
Estimates of OPEC's overproduction vary, but Mr. Eagles' estimate of 3 million barrels a day is 14 percent more oil than the group agreed to pump under the target it set last December. Quota-busting is an old habit for OPEC. Although compliance has improved greatly in recent years, it worsened sharply during the fall when producers boosted their output to cash in on a price spike caused by nervousness about a war in the Gulf.
"This is the worst it's been in four years," said Adam Sieminski, an oil price strategist at Deutsche Bank in London.
OPEC, which produces about a third of the world's oil, has an output target of 21.7 million barrels a day.
The group's zeal in pumping more crude threatens to undercut prices, particularly during the second quarter of next year when demand for heating oil tends to plummet. It also hurts OPEC's recently acquired reputation for reliability.
Some cartel members appear to have taken note, and analysts say OPEC's daily production fell by at least 200,000 barrels from October to November.
"The specter of a price fall reared its head, and they got frightened," said Leo Drollas, chief economist for the Center for Global Energy Studies in London.
By complying with their individual quotas, OPEC members will try to cut total production by about 1 million barrels a day, analysts say.
OPEC can soak up much of its remaining overproduction by raising its output target, an idea Saudi Arabia is said to have proposed at the group's previous meeting in September. Other OPEC members demurred then, but some analysts expect the group to agree this week to increase its target by 1.5 million barrels a day.

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