OPEC Won’t Boost Oil Output

The Organization of the Petroleum Exporting Countries decided Thursday to keep production quotas at 11-year lows, indicating that prices are likely to continue at levels that are almost 50% higher than last year.

The decision comes as the United States debates whether to take military action against Iraq, a move that could increase prices even more. It also is a difficult time for high oil prices because the added costs will make it harder for the U.S. and world economies to recover.

“If they don’t increase production and put downward pressure on prices, we’ll have a fairly stagnant economy for some time to come,” said James Williams, president of WRTG Economics, an Arkansas energy consulting firm.

“Oil is involved in everything. If you eat a sandwich, the bread had to be transported. Somebody had to turn natural gas into fertilizer to grow the wheat. The entire world infrastructure is dependent on it.”

OPEC, whose members sell about one-third of the world’s oil, has been holding oil production levels down to try to engineer a market price in the range of $22 to $28 a barrel. Crude oil for October delivery closed up 2 cents at $29.50 in New York on Thursday.

Experts say war fears have built a premium of $2 to more than $5 a barrel into the price. Some experts are forecasting a price of $40 a barrel this winter if there is war and if it is a tough heating season. Such fears have encouraged stockpiling, increasing the prices even more.

Such “scaremongering” was why OPEC ministers said they felt justified in keeping the production quotas in place.

Qatari Oil Minister Abdullah ibn Hamad al Attiyah, newly elected OPEC president, said the price increases dictated by the market were “political prices, not market prices.”

OPEC ministers said that in the event of a war with Iraq, supply could easily be increased.

“God forbid there is a disruption in supply; we have 5 million barrels per day of excess supply to take care of any issue that might arise,” said Rilwanu Lukman of Nigeria, OPEC’s outgoing president. “We stand ready to supply any shortages that might arise.”

Iraq’s production has dwindled to less than 1 million barrels a day, though it has capacity to produce 3.1 million barrels. It was assessing a premium on its oil to get around U.N. sanctions.

Saddam Hassan, Iraq’s delegate to the OPEC meeting, said Iraq was pleased that the quotas were kept.

“We want market stability,” he said, but he vowed to increase production steadily. Because of U.N. sanctions, Iraq has no quotas.

“We will keep exporting 2.2 million barrels a day--forget the Americans, forget the British,” Hassan said.

The organization will meet again to review its decision Dec. 12.

The group’s quota is 21.7 million barrels a day. Still, members’ production has exceeded the quota by 1.8 million barrels a day, Lukman said.

Saudi Arabia had been quietly lobbying its OPEC colleagues to raise production because it has plenty of excess capacity and can make more money.

But other nations, such as Indonesia, that already are producing all the oil they can want to keep the output low, hence boosting prices. Their national outputs are heavily dependent on oil prices.

Let the price rise too high, though, and it encourages more competition long term from non-OPEC producers, analysts say.