- The Washington Times - Wednesday, June 16, 2004

LONDON (AP) — OPEC signaled yesterday it would boost oil production and ask other major oil producers outside the group, such as Mexico, to do so as well to make up for lost crude exports from sabotaged pipelines in Iraq.

But analysts said pumping the extra oil would strain the world’s limited spare production capacity and leave a thin cushion with which to absorb any future supply disruptions.

An attack on the two southern pipelines serving as Iraq’s main export route for oil forced the suspension yesterday of 1.5 million barrels in daily Iraqi shipments from the Persian Gulf. The explosion north of the coastal town of Faw was the second such attack in three days, and some analysts estimated that Iraqis would need 10 days to repair the damage.

Oil markets shrugged off the disruption, thanks to signs from the Organization of Petroleum Exporting Countries and its most powerful member, Saudi Arabia, that they would make up for the shortfall in Iraqi crude.

“The policy of Saudi Arabia and of OPEC in general is to make sure there is enough oil in the market and that there is no supply shortage,” said a senior Gulf OPEC source, speaking on the condition of anonymity.

OPEC would also ask large independent producers such as Russia and Mexico to cooperate by pumping more oil of their own, OPEC President Purnomo Yusgiantoro said in Jakarta, Indonesia.

But Russia and Norway — the world’s second- and third-largest oil exporters after Saudi Arabia — said they could do little to help.

“We are producing as much as we can,” the director of Russia’s Federal Energy Agency, Sergei Oganesyan, told the Interfax news agency. In Norway, Deputy Oil Minister Oeyvind Haabrekke told the state radio network NRK that his country had “no excess capacity and no possibility of increasing production.”

There was no immediate response from Mexico’s energy department.

The state oil company Petroleos Mexicanos currently produces 3.4 million barrels a day of crude, of which it exports 1.86 million. It is aiming to raise output to 3.5 million barrels a day this year.

Analysts fear that additional attacks on Iraq’s vulnerable oil infrastructure — and a damaging spike in crude prices — could lie ahead as the U.S.-led coalition prepares to hand over political power to Iraqis on June 30. If Iraq’s insurgents succeed in disrupting exports well into the summer, analysts worry that an expected increase in oil demand during the second half of the year could use up most of the world’s already meager surplus capacity.

Much depends on how quickly Iraq can fix its pipelines and resume exporting. A risk looms that saboteurs might intensify their attacks on oil facilities ahead of the transfer of power in Iraq and that authorities there won’t be able to make repairs fast enough.

If that happens, analysts say prices could soar — especially if another major oil producer suffers a simultaneous disruption.

“If something happens in Saudi Arabia, that’s the $100 [per barrel] oil. And that might be just for starters,” says Adam Sieminski of Deutsche Bank in London.

Contracts of U.S. light crude for July delivery rose 13 cents to settle at $37.30 per barrel yesterday in New York. August contracts of North Sea Brent crude rose 17 cents to settle at $35.20 on the International Petroleum Exchange in London.

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