Oil hovers at $30 ahead of OPEC meeting


Oil prices are hovering near $30 a barrel ahead of Thursday's OPEC meeting in the Japanese city of Osaka

Staff and wires

OSAKA, Japan -- In the shadow of a possible U.S. war on Iraq, oil prices are near $30 a barrel Monday ahead of Thursday's meeting of the Organization of the Petroleum Exporting Countries (OPEC) group in Japan.

The OPEC members will review their output policy at their meeting in Osaka, with the world's biggest exporter, Saudi Arabia, yet to signal its position.

The 11-member group's official output is limited to 21.7 million barrels a day, but "leakage", or over-production, last month was estimated at 2.15 million bpd.

U.S. crude is up two cents to $29.82 a barrel in Monday afternoon trade, holding near a 19-month high of $30.32 reached late in August.

Morgan Stanley regional analyst Andy Xie told CNN Monday that it was possible oil could spike to $40 a barrel if war breaks out.

Even a $5 a barrel rise in the cost of oil could see the Asian region's gross domestic product trimmed by half a percent, he said.

The United States and its allies are pushing the United Nations to force Iraq to honour U.N. resolutions and readmit arms inspectors to avoid war.

U.S. Secretary of State Colin Powell said Sunday that U.N. weapons inspectors must be allowed to go "anywhere, anytime" if they returned to Iraq. (Full story)

Most exposed

Japan is regarded as the Asian economy most exposed to the impact of a war because of its high dependence on imported energy, and on exports as an engine of growth. (Full story)

Oil accounts for 52 percent of Japan's total energy supply, and about 86 percent of its $50 billion in annual oil imports comes from the Middle East.

South Korea, Taiwan and Thailand are also heavily dependent on Mid-East oil.

Military analysts say oil tankers heading out of the Arabian Gulf would likely become targets if hostilities break out. That in turn would put pressure on oil supplies in Asia, despite most refiners keeping reserves of at least 70 days.

Last week, the U.S. Navy warned that al Qaeda terrorists may be planning attacks against tankers, sending oil prices to $30 a barrel on the NYMEX by mid-week.

Suffiicient volume

OPEC Secretary-General Alvaro Silva, arriving in Osaka, the commercial capital of western Japan, told Reuters news agency that world markets were supplied with sufficient volumes of crude.

He declined to comment on whether he expected OPEC to raise production to stem this year's price rise.

Silva said he thought market supplies were sufficient and stocks comfortable. He said prices had been boosted by the fear of war against OPEC member Iraq.

U.S. crude jumped almost $1 a barrel on Friday after Iraq rejected U.S. demands to allow weapons inspectors back into the country, raising the likelihood of a military strike against Baghdad to oust Iraqi leader Saddam Hussein.

U.S. President George Bush and his advisers have been campaigning for support to topple the Iraqi regime, which the United States says is trying to develop weapons of mass destruction.

Likely to be volatile

Analysts said crude was likely to be volatile this week while OPEC policy remains uncertain and the threat of war in Iraq hangs over the market.

OPEC price hawks including Kuwait, Venezuela and Qatar have said they want to keep the group's production ceiling at 21.7 million barrels per day.

David Thurtell, commodities strategist at Commonwealth Bank in Sydney, told Reuters he thought OPEC would likely increase output by 500,000 bpd, which could send prices down to $28.50.

"If they do more, say one million bpd, oil would go down to about $27, but I think 500,000 to 750,000 bpd is the maximum they would do," Thurtell said.

Reuters contributed to this report.