OPEC tries to reassure world it has capacity to meet global shortfall

OPEC yesterday tried to reassure sceptical markets that it would fill any oil supply void caused by a war in Iraq.

"OPEC is committed to ensuring order and stability in the international oil market at all times. . . [we\] still have some additional production capacity to meet possible shortfalls in world supplies," said Mr Abdullah bin Hamad Al Attiyah, Qatar's energy minister and president of OPEC.

However, the cartel has already pumped the vast majority of its extra barrels and the spotlight will now be on consuming governments and whether they will release their strategic stockpiles of oil to curb rising prices.

OPEC could have sent a stronger signal to the market by deciding at its meeting in Vienna yesterday to suspend its output quotas once war began.

But the group did not want to appear to support a war against one of its members and suspending output ceilings would make it more difficult to rein in production once prices normalised.

In fact, suspending quotas would have been a somewhat hollow move.

OPEC members, and in particular the most powerful member Saudi Arabia, have shown their willingness and ability since January to supply the market with more oil than their agreed ceiling of 24.5 million barrels per day (b/d).

Nevertheless, oil prices have risen more than 60 per cent since last summer when Washington's debate over whether to go to war with Iraq began to intensify.

Last month, a cold winter and record low commercial crude storage levels helped push Nymex oil futures prices to nearly $40 (€36.22) a barrel, a level not seen since shortly after Iraq invaded Kuwait in 1990.

The crux of the issue is OPEC's spare capacity, which analysts estimate at one-1.5 million b/d, the vast majority of which belongs to Saudi Arabia.

Whether the market believes the kingdom can make up for an interruption in Iraq's two million b/d exports will, to a large extent, define how the price of oil will react when the war begins, analysts said.

IPE Brent for April delivery fell 18 cents to $33.51 a barrel, off its intra-day low of $33.22. The front-end Brent contract expires on Friday.

The longer-dated contracts had smaller falls, with the December contract trading above $28 per barrel as oil traders now factor in a less-dramatic fall in the oil price after any resolution to the Iraqi-US tensions.

Its US counterpart, Nymex WTI for April delivery, eased 57 cents to $36.70 a barrel, following a 51 cent drop on Monday.