Saudi oil minister warns OPEC against flooding market

OPEC needs to compensate for a shortfall in oil exports from Venezuela but it shouldn’t change its output target of 23 million barrels a day, the group’s most influential oil minister said today.

An increase in the target “would really flood the market”, Saudi Arabian Oil Minister Ali Naimi said before an emergency meeting of the Organisation of Petroleum Exporting Countries in Vienna.

OPEC called the meeting last week hoping to calm fears of supply problems caused by a strike in Venezuela begun on December 2 by political opponents seeking to oust President Hugo Chavez.

The strike has slashed the country’s exports by about 2 million barrels a day. Venezuela is normally OPEC’s third-largest producer and a major oil supplier to the United States.

OPEC pumps about a third of the world’s crude supplies, which total 79 million barrels a day.

Naimi acknowledged that the Venezuelan strike has deprived the market of crude. “I care about what the market needs,” he said.

However, he added that OPEC’s production ceiling of 23 million barrels a day should remain unchanged. Naimi declined to say how OPEC should try to compensate for the missing Venezuelan oil.

One possible solution would be for Venezuela’s OPEC partners to increase their own production to cover the shortfall until Venezuelan exports can resume.

Saudi Arabia accounts for the bulk of the group’s spare production capacity and would stand to gain from any such temporary adjustment of output quotas. Saudi Arabia’s current output quota is 7.5 million barrels a day but Naimi said his country could boost daily production to 10 million barrels within two weeks.

Still, OPEC members worry that if they do raise production, the additional barrels might hit markets just as seasonal demand starts weakening in the spring.

Neither Venezuelan Oil Minister Rafael Ramirez nor Ali Rodriguez, head of the country’s state-run oil company, would say if he supported an increase in OPEC production. An unspoken concern was that any reallocation of quotas to offset the shortfall might take some of the external pressure off Venezuela’s opposition to end its strike.

Fears about a possible US-led war against Iraq have added upward pressure to world oil prices. Iraq has the second-biggest oil reserves after Saudi Arabia and there has been a steady build-up of US troops in the Persian Gulf.

Crude prices surged in recent weeks but fell sharply in anticipation of OPEC’s boosting production.

On the New York Mercantile Exchange, February contracts of light, sweet crude futures fell 31 cents on Friday to close at 31.68 dollars. On London’s International Petroleum Exchange, February Brent crude ended at 29.67 dollars a barrel, up 3 cents. OPEC’s price target is 22-28 dollars per barrel.