Worries about how to leap those hurdles unscathed lie behind a cautious Saudi statement on Wednesday that the oil superpower would work with OPEC for a rise in output to stabilise prices.

The lack of detail in the kingdom's first oil policy statement in months came as little surprise to analysts tracking the cartel's halting attempts to ease prices at decade highs.

High on the list of economic deterrents is the risk of a price collapse that the Organisation of the Petroleum Exporting Countries fears might be set off by any attempt to flood the world with oil to deflate feverish values.

And a more modest output rise may prove impotent against a backwar dated price structure that values prompt oil over later-loading oil and thus deters buying and storing of petroleum.

"OPEC should raise output to help rebuild stocks but whether it will oblige is uncertain, since too many members fear a price collapse," said London's Centre for Global Energy Studies.

Cartel unity a priority before summit
In any case, priorities of prestige and cartel unity mean OPEC wants to shield markets against a slump to allow its heads-of-state summit next month to bask in the glow of firm prices.

And many in OPEC, hobbled by debt accumulated since their boom years of the 1970s, remain desperate for every petrodollar.

President Bill Clinton will have much to say about expensive energy when he meets Saudi Prince Abdullah next week following agonised consumer complaints about high fuel costs.

US pressure for lower prices is sure to grow stronger in a presidential election year where fears abound of winter shortages in the world's biggest heating oil market.

The Saudis have their own concerns about high prices - among them the damage high prices can do to oil demand growth and the spur they provide to rival non-OPEC output.

But logjams in the supply chain from the desert well heads of OPEC to US gasoline pumps and storage tanks mean the cartel is already struggling to market extra fuel on commercial terms.

"I'm sure the Saudis don't want prices at this level ... the worst thing possible that could happen for them in the US is old people freezing in the dark," said Sarah Emerson of US Consultancy Energy Security Analysis.

"But what the Saudis are afraid of is doing too much (to ease prices)."The paradox of a tight refined products market in parallel with backwardated crude prices is that low petroleum inventories do not automatically call forth extra supply, experts say.

The problem has become apparent with the difficulty Saudi has faced in placing its crude on the market at short notice. In such circumstances, simply throwing extra cargoes at reluctant refiners could prove to be a blunt instrument. "The risk of the price overshooting on the downside would be very great," said an executive experienced in OPEC negotiations.

"The only way you can break the backwardation is to make a clear announcement of radical action to increase production and at the same time to discount physical oil.

"But the Saudis are not prepared to discount prompt deliveries and I don't blame them. They have done that two or three times in their history and it has always been disastrous."

Saudi Arabia, a US ally, is the dominant power in the 11-strong group that pumps the bulk of internationally traded oil.

But the kingdom is unwilling to be seen to act alone in response to US political pressure and wants to cajole its OPEC colleagues into sharing the burden of managing prices lower.

Saudi Arabia wants to avoid a repeat of the criticism it attracted for a price collapse in 1998. The slump followed the kingdom's insistence on a large rise in the cartel's output ceiling at a policy-making meeting in Jakarta in late 1997.

"The Saudis will work hard to ensure that it is not forced to take unilateral action," said Petroleum Finance Company.

Saudi's task is complicated by the fact that it is the only cartel member with large spare output capacity, meaning it must pump more than its quota if OPEC makes any sizeable output hike.

A 500,000 barrel per day (bpd) output increase by the grouping looks on the cards next month under the terms of a fledgling cartel price stability mechanism. The upside for Saudi, according to Emerson, is that if the price overshoots, Saudi can quickly tighten the pumps.

"They know at the end of the day, if they've overshot on the price, it's a pretty easy fix," she said. "It's all their oil, because they are the final producer, the marginal source." -- (Reuters)