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Saudis shake OPEC with call for higher oil output

November 23, 1997

JAKARTA, Indonesia (AP) _ OPEC faces a dilemma it has avoided for a few years: The world’s top oil producer, Saudi Arabia, wants to pump more.

Saudi oil minister Ali Naimi is OPEC’s most influential player, but his suggestion that the group should raise its production ceiling, perhaps by around 2 million barrels a day, will not sit well with some members worried that prices could fall.

It could lead to some of the hardest negotiations OPEC ministers have held in some time, if they end up fighting over new production quotas while trying to ensure they don’t spook oil traders with the threat of a glutted market.

But oil consumers shouldn’t hold their breath for any bargains _ analysts believe OPEC ministers will get through their winter meeting this week in the Indonesian capital without weakening the price too badly.

The Organization of the Petroleum Exporting Countries has made no major changes to its official production quotas since 1993, although some cosmetic adjustments were made in June 1996 to allow for limited crude oil exports by Iraq, which has been mostly shut out of the market since it invaded fellow OPEC member Kuwait in 1990.

Iraq’s recent jockeying with the United Nations over weapons inspections will also be on the agenda, though probably little will come of those discussions because Iraq’s return to the market is not seen as an immediate threat.

OPEC is still missing its target of $21 a barrel by around $2, but oil prices have held firm despite widespread cheating on production quotas by most members.

Global demand for crude oil is high enough that the Saudis think they can lobby for more without any big upsets.

``It’s a clever move. It surprised people and put quotas back on the agenda,″ said Leo Drollas, chief economist at the Center for Global Energy Studies in London. ``It looks like a serious meeting this time _ there’s serious issues to discuss.″

The official OPEC production ceiling has stood at 25.033 million barrels a day since Iraq got partly back into the market _ and ministers have rolled over everybody’s quotas at the same level ever since.

Experts believe widespread cheating by most of the OPEC members, led by Venezuela’s massive overproduction, has now pushed actual output to more than 27 million barrels a day.

Only Saudi Arabia, Kuwait and the United Arab Emirates are believed to be restraining themselves _ thus propping up the price of the world’s key energy commodity.

The Saudi minister, Naimi, suggested earlier in the month that OPEC should raise its production ceiling, hinting that 26 million to 27 million barrels a day might be a good number. OPEC sources say privately that the Saudis want the production ceiling to rise by about 2 million barrels a day.

The Saudis can count on support from Kuwait and the United Arab Emirates, but they could run into opposition from others who would have a hard time increasing current production capacity.

Iranian officials have indicated _ but not formally announced _ they don’t like the Saudi proposal. Indonesia and Libya apparently are also opposed.

Saudi Arabia is by far the biggest OPEC producer, with an official quota of 8 million barrels a day that would likely rise to 8.6 million barrels to 8.7 million barrels a day under a new quota system.

Although OPEC is not likely to actually produce what it says it will produce, the Saudis could be looking to the future, hoping for a better bargaining position when the day comes that OPEC must confront falling prices or the eventual full-scale return of Iraqi exports.

Peter Bogin, an associate director at Cambridge Energy Research Associates in Paris, said a higher OPEC production ceiling would likely only give markets a brief worry. Strong world demand _ rather than short-term greed by producers _ is seen as driving the call for more oil.

``It used to be a very negative sign _ everybody saying, oh, OPEC’s flooding the market,″ Bogin said. ``Now, it’s a positive development.″

OPEC members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, Venezuela and United Arab Emirates.

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