OPEC's ability to tame $100 oil limited

By Simon Webb - Analysis

DUBAI (Reuters) - OPEC's ability to tame oil prices that hit a record high above $100 a barrel last week is curbed by limited unused production capacity, officials from the exporter group and analysts say.

The Organization of the Petroleum Exporting Countries says it holds around 3 million barrels per day of production in reserve. Since many members have expressed unease with record prices, that begs the question: why are they not raising output?

Since oil hit $100 for the first time last week, some OPEC ministers and officials have said most members are already pumping at full tilt, leaving little room for collective action.

"Because most members are currently producing at full capacity, it seems that even if there is a decision to increase the output ceiling, not all members would be able to," Mohammad Ali Khatibi, deputy director of international affairs at the National Iranian Oil Company, said recently.

While OPEC says it could boost output by an additional 3 million bpd -- enough to flood the 86 million bpd world market -- other analysts say that figure is too high.

The U.S. government's Energy Information Administration pegged the group's reserve much lower at 1.6 million bpd in its monthly outlook on Tuesday.

Saudi Arabia, the world's top oil exporter, holds the bulk of the unused production capacity within the 13-member OPEC.

"$100 oil means that anybody that could be pumping should be pumping," said Edward Morse, chief energy economist for investment bank Lehman Brothers.

"That should raise questions about Saudi Arabia's spare capacity. It has heavy oil that it's not producing because there is nowhere to refine it."

SAUDI

Apart from Saudi Arabia, the United Arab Emirates and Kuwait are the only other countries able to add significant extra supply, according to estimates from the Paris-based International Energy Agency.

Saudi Arabia says it can pump an additional 2.3 million bpd. But both the IEA, an adviser to industrialized countries, and the EIA put Saudi spare capacity lower at 1.8 and 1.53 million bpd, respectively.

"Right now, Saudi Arabia has around 2.3 million bpd of spare capacity," a Saudi source said. "We could go to 11.3 million bpd and sustain it. That would not be just a surge and would not need any extra effort. Our spare capacity has been tested before on many occasions."

The kingdom was pumping as much as 9.6 million bpd in November 2005, and cut back to around 8.6 million bpd in March last year. Current output stands at around 9 million bpd.

But some experts, including a former senior official at Saudi Aramco, the state oil company, question how long a big boost in supply from mothballed capacity could be maintained.