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. Last Updated: 07/27/2016

OPEC Cool on Iraqi Crisis

VIENNA -- OPEC ministers arriving for a crucial meeting on output appeared either confused or complacent about how the oil producer group would deal with its first crisis since the 1991 Gulf War.

They gave skeptical oil traders an impression that they saw no big risk to prices from 700,000 to 800,000 barrels per day (bpd) of Iraqi exports hitting the market, now that the United Nations has relaxed its Gulf War embargo on that country.

"Why should there be any danger?" asked Rilwanu Lukman of Nigeria, secretary-general of the Organization of Petroleum Exporting Countries.

Venezuelan Oil Minister Erwin Jose Arrieta told lobby reporters that supply quotas and ceilings were not even "the prime issue" for OPEC when ministerial talks open on Wednesday.

"I think there are many important subjects further than quotas and quotas and quotas," said Arrieta, who again denied that Venezuela was the biggest OPEC quota violator.

But output levels are a focus for traders who are not so sure OPEC can avoid a price slump once the Iraqi oil does reach a finely-balanced market.

"It is a very old technique OPEC used through the 1980s -- the belief that by saying 'everything is all right' the market will not react negatively," said Simon Trimble, an oil analyst at Merrill Lynch International in London.

Markets are on a knife edge to see how OPEC will manage the risk of a glut now that Iraq is permitted to sell $2 billion worth of oil over six months to buy food and medicine.

Traders are not impressed by the forecasts of some members, including influential Saudi Arabia, that demand for OPEC oil would average 26 million bpd in 1996. They say OPEC output already exceeds that level, even without Iraqi oil.

"Over the years, the market has not put much credence on OPEC demand forecasts, so if they do nothing this week I do not see it as very supportive of the market," said Charles Gray, an energy analyst at Prudential-Bache.

Various uncertainties surround the return of Iraq after nearly six years of sanctions and make OPEC's job difficult.

Privately, some delegates and even ministers express concern that relatively high current prices after a cold Northern winter may look shaky if Iraq's revived sales coincide with a seasonal downturn in oil demand.

United Arab Emirates Acting Oil Minister Rakad bin Salem bin Rakad said he thought prices "could be better." Indeed, in real terms they are hardly better than they were when OPEC was founded 36 years ago to get a better deal for producers.

Demand is set to surge again this year to a new record but so is non-OPEC output. Chronic OPEC overproduction as most of members exceed quotas is an even bigger challenge than Iraq.

OPEC President Amar Makhloufi said members were ready to deal with the excess that some independent monitors say adds about 1.5 million barrels daily over a 24.52 million ceiling.

It is unclear how much oil Iraq would sell on a daily basis or how quickly. The UN deal sets a lid on cash receipts but not on volume, implying Iraq could sell more if prices fell.