- The Washington Times - Monday, January 13, 2003

OPEC members yesterday agreed to increase the cartel's oil production target by 6.5 percent to stabilize a world market jittery about a crisis in Venezuela and the possibility of war in Iraq.
Analysts said the 11-member cartel's decision to increase daily output to 24.5 million barrels a day could stabilize gasoline prices in the United States. But they said the threat of war with Iraq and cold weather are likely to keep gas prices from going down to the low levels of last year.
The average price of gasoline in the Washington area is $1.49 a gallon, about 36 cents higher than at this point last year, according to AAA Mid-Atlantic. Prices have spiraled upward in the past month, in part because of an oil industry strike in Venezuela that has slowed production and exports.
Fears that the United States will enter into a military conflict with Iraq, a member of the Organization of the Petroleum Exporting Countries, also have helped push prices higher. Iraq produces about 3 percent of the world's oil.
"You could actually see [gasoline] prices go down, but they may not return to where they were," said John Felmy, an economist with the American Petroleum Institute. "The demand for heating fuel is high. It's going to come down to what's going to happen to the weather, the economy, Iraq."
High crude oil prices have put some pressure on the U.S. economy. Mr. Felmy said that for every sustained price increase of more than $5 for a barrel of oil, the gross domestic product can fall about three-tenths of a percent.
Crude oil prices are just less than $30 a barrel, according to the Brent Crude Oil Index. The prices are close to two-year highs. OPEC said the production increase should bring down prices to within the group's desired range of $22 to $28 a barrel.
The production increase could kick in as early as tomorrow.
But some analysts were skeptical that the production increase would be enough to offset production lost from the oil industry strike in Venezuela, now into its 43rd day.
"Assuming we lost about 2 million barrels a day from Venezuela as a result of the strike and assuming that OPEC produces an extra 1.5 million barrels, which is in itself a big stretch, it still means we have a shortfall of 500,000 barrels," said Nauman Barakat, the head of the oil trading desk at Fimat International Banque in London.
He and other analysts said many OPEC countries are already producing at capacity and that many are producing oil beyond limits set by an OPEC production agreement.
Saudi Arabia, Kuwait and Nigeria already met or exceeded the new quotas in December and have been exceeding quotas for much of the year. This "quota busting" has become common, analysts said, because producers want to take advantage of high prices. Furthermore, some OPEC nations have been grasping for revenue as they battle internal budget crises.
This article is based in part on wire service reports.

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