Dec 31, 2002 3 min read

LONDON (AP) – Global oil prices dropped Monday after a report that OPEC was prepared to increase output, easing supply concerns stemming from the crippling of Venezuela’s petroleum industry and a possible war in Iraq. Venezuela’s oil minister also sought to calm markets by saying the country’s oil production, refining and exports, which have been hampered by a nationwide strike, would be back to normal by the end of January.

Earlier in the day, though, the geopolitical issues weighed heavily on the minds of oil traders, who sent crude prices soaring in London and New York.

Crude futures reached a high of $31.02 a barrel on London’s International Petroleum Exchange and climbed to a new two-year high of $33.65 a barrel on the New York Mercantile Exchange.

“It is pretty much as it has been for the past month – the two driving factors being Iraq and Venezuela,” said Orrin Middleton, oil analyst at Barclays Capital.

But at the end of trading in London, February Brent futures had closed 50 cents lower at $29.66 a barrel. In New York afternoon trading, crude for February delivery was down $1.42 to $31.30 a barrel.

Reports that the Organization of Petroleum Exporting Countries was already in consultations to increase output by at least 500,000 barrels a day took some heat out of the price.

Over the weekend, Kuwaiti Oil Minister Sheik Ahmed Fahd Al Ahmed Al Sabah said the Organization of Petroleum Exporting Countries would consider meeting to discuss hiking output if oil prices remain high for a prolonged period, The Times of London reported Monday. “I can assure you that OPEC will meet if the price stays high,” the newspaper quoted him as saying.

Under OPEC’s output mechanism, an increase in production can be triggered if the price of its benchmark basket of crudes remains over $22-$28 a barrel for 20 consecutive days.

The basket price has been above $28 a barrel for nine consecutive trading days.

Concerns about a possible U.S.-led attack on Iraq continued to pressure the market. Two U.S. aircraft carrier battle groups, each with about 10,000 sailors and Marines, are within striking distance of Iraq. Two others were ordered last week to prepare for departure on 96 hours’ notice, as were two amphibious warfare groups.

Meanwhile, oil exports from Venezuela, the world’s fifth-largest oil producer, have plummeted to 340,000 barrels a day from 2.3 million barrels a day due to a crippling four-week strike.

Venezuelan Oil Minister Rafael Ramirez, however, claimed on Monday that the country’s oil refining, export and production operations should return to normal by the end of January.

“By next week, production should stand at 1.2 million barrels per day and I think we can reestablish all operations within a month,” Ramirez told reporters.

But in a recent report, Prudential Financial analyst Andrew Rosenfeld made the assumption that if the strike in Venezuela ended in early January, oil production and exports would not be fully restored until early February.

Ali Rodriguez, president of the Venezuelan state oil monopoly Petroleos de Venezuela S.A. or PDVSA, said Venezuela is currently producing between 600,000 and 700,000 barrels a day.

Striking PDVSA executives saying it is producing less than 200,000 barrels a day.