OPEC oil producers on Tuesday decided to postpone a decision on how to respond to Iraq's stoppage of its U.N.-administered crude sales, but agreed to meet next month to assess the impact.
Ministers said ample crude inventories and stable prices mean there is no need to panic over Baghdad's decision to suspend deliveries under the United Nations oil-for-food program. They said their vote was unanimous.
They agreed to leave output at 24.2 million barrels daily for 10 members and to gather for an emergency session on July 3.
"By then the picture will be more clear and we can see how the market will react," said Qatari Oil Minister Abdullah al-Attiyah. "OPEC and the market need time to assess if Iraq's decision will cause a crisis."
When asked if OPEC would pump more oil at that time if conditions warrant, he replied: "We will."
Iraq halted deliveries of its 2.1 million barrels, except for exports by truck to neighboring Turkey and Jordan, after the Security Council voted to extend the U.N. oil-for-food program by only a month, instead of the normal six-month renewal.
Iraq's OPEC representative, Taha Humud Musa, said supplies would stay on hold for the duration of the extension to early July and possibly beyond that.
OPEC though was loath to jack up production too quickly for fear that Baghdad might repeat the pattern seen during its previous self-imposed outages and resume exports shortly.
Saudi Oil Minister Ali al-Naimi indicated that the cartel would probably need to add to production if the Iraqi outage lasts for the month that Iraq is threatening.
"We do not know what Iraq's game plan is," said Naimi. "Will this last day, a week, a month?"
But he agreed that a month-long outage of Iraq's two million barrels daily would leave a shortfall in supplies. "Yes 60 million barrels out of the market is a shortage," he said.
Analysts say that, with or without Iraq, OPEC will need to raise production sometime soon to meet rising demand as refiners build stocks for winter.
"There's plenty of oil out there for now but the market was always going to need more in the second half of the year and with Iraq out it's going to need a lot more," said Gary Ross of leading U.S. consultancy PIRA Energy.
"I think the market may be misreading the situation. Supply will be much tighter in a month's time," Ross added.
After slicing supply earlier this year by 2.5 million barrels daily, producers have plenty of spare capacity.
Some of that is likely to appear on the markets in the form of leakage above official quota limits before OPEC actually sanctions extra output.
"To keep the market in balance they'll need to add a million barrels a day in July," said Roger Diwan of Washington's Petroleum Finance Corp. "But they will probably be only making official what they will be leaking by then."
"The idea of a protracted disruption is significant for the market because it would bring to light the fact that every OPEC country is going to be at their maximum export capacity," said Michael Rothman of Merrill Lynch.
Iraq analysts said Baghdad had moved quickly to stop oil sales in a bid to influence debate at the United Nations over a revised package of sanctions.
An Anglo-U.S. proposal would lift restrictions on civilian imports to Iraq but crack down on oil smuggled across the Iraqi border, the main source of hard cash for President Saddam Hussein's government.
Iraq is continuing to supply its neighbors with oil. Turkey, Iraq and Jordan together receive some 300,000 barrels a day at discounted prics, worth at least $1.5 billion a year.
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