OPEC has long publicly fretted that a drop in global fuel demand after the northern hemisphere winter and a recovery in Iraq to pre-war crude export volumes would bring oil's five-year price bonanza to a screeching halt.

Instead U.S. crude last week hit a 13-year closing high on the New York Mercantile Exchange of over $38 a barrel, raising the alarm on energy costs for importing nations.

OPEC's mid-February decision to slice production quotas by four percent from April 1, a second surprise cut in six months, now looks one step too far in the group's campaign of supply restrictions that officially is designed to keep prices in a $22-$28 range.

Ministers must decide at their March 31 meeting in Vienna whether to defer or cancel the April cut, and risk a big fall in prices, or go ahead with it and upset consuming nations worried about the economic impact of energy inflation.

"By not cutting, it runs the risk that prices fall precipitously if stocks continue to build and gasoline is unsupportive," said William Buchanan of Standard Bank in London.

"Cutting as planned could encourage more funds to push prices even higher, incurring the wrath of the United States and jeopardizing demand."

EXTERNAL FORCES

OPEC ministers blame external forces, rather than any shortage of its crude, for lifting benchmark U.S. crude futures to an average of more than $35 a barrel so far this year, well above 2003's $31 average, itself the highest in two decades.

China's rampant fuel demand growth, geopolitical security fears and low U.S. gasoline stocks of a new green fuel have turned oil futures into a buying magnet for big-money fund managers. The speculative buying has fueled OPEC's nagging fear that a sudden exodus by those funds could send prices into free fall. A recent survey of analysts estimated speculators have injected a premium of about $8 into U.S. crude prices.

"I am convinced there are two reasons for such a high price - the reduced quantity of petrol in America and speculators who are convinced there is going to be a lack of crude," Saudi Oil Minister Ali al-Naimi said this week. The big question now is whether OPEC, and Saudi Arabia in particular, think prices are too high for the group's own good.

The Bush administration is showing growing unease about the political fallout of high prices at the pump in an election year. But the post-9/11 chill in relations between Washington and Saudi suggest Riyadh is no longer in the business of reining in OPEC's price hawks.

Self-interest indicates OPEC best avoid allowing high prices choking off fuel demand but so far the pace of U.S. and Chinese demand growth suggests consumers are getting used to more expensive fuel. U.S. Federal Reserve official Michael Moskow said this week he had yet to see evidence that rising energy costs were hurting the American economy.

FEARS RUN DEEP

OPEC's five-year market management success, following the price slump of late 1998, has been founded on keeping U.S. inventories lean. Despite price strength the fear of excess supplies building in the second quarter still runs deep among many cartel ministers.

OPEC economists, meeting this week to prepare a report for ministers, will not have missed the fact that U.S. crude stocks have shown a steady rise from 28-year lows struck two months ago.

The OPEC secretariat's latest oil market report estimated that demand for its oil during the second quarter will be 3.4 million barrels per day less than current production. That would mean more than double the 1.5 million bpd inventory build OPEC considers normal for the period.