FOCUS-Mexico eyes March crude production increase

By Susan Schneider

MEXICO CITY, Feb 15 (Reuters) - With record-low inventories threatening to keep oil prices trading above $30 a barrel, Mexico called for an increase in crude output among world producers once supply cuts expire at the end of March.

Mexican Energy Minister Luis Tellez said on Tuesday that prices of $30 are "too high" and not sustainable over the long term, adding that such levels could hurt the global economy by fueling inflation and causing a hike in interest rates.

"For us, a price above $30 is a price that has an impact on the world economy that we don't want to see occur," Tellez told reporters at a Mexico City symposium.

Mexico is not a member of the Organization of Petroleum Exporting Countries (OPEC), but it has joined the cartel in implementing supply cuts over the past year.

Tellez said Mexico does have a number "in mind" for how much it would increase production, but he declined to provide the figure because it must be agreed upon with OPEC and other producers. Tellez told Reuters that increased crude output would begin March 31, if agreed upon by oil exporters.

The top Mexican energy official said he could not discuss an ideal price for crude, but that Mexico wished for "adequate" prices that do not restrict growth. The nation has targeted an average price of $16 a barrel for 2000 and the Mexican mix is currently trading at more than $25 a barrel, he added.

"Mexico has always established its goal as price stability, at a price that is adequate for the expansion of the world economy," Tellez said.

The signal from Mexico is considered critical to laying the seeds of an eventual supply increase, since the nation was one of the architects of the March 1999 supply cut accord.

Still, mixed messages from major exporters have given oil prices little room to make a permanent retreat from the $30 mark. Crude prices are currently at their highest point since the 1991 Persian Gulf War and almost triple the levels of a year ago.

Venezuelan sources, for example, said last week that OPEC was likely to approve an increase in supplies, with one source saying a jump in output of 1.7 million barrels a day to could be on the cards for June.

But Venezuelan President Hugo Chavez countered the hints of a supply rise on Tuesday, saying there is still no factor that points to an increase in production. He said the topic still had not been discussed among Venezuela, Saudi Arabia and Mexico.

Tellez, meanwhile, said he has "exchanged" opinions with Saudi Arabia and Venezuela on several recent occasions and that the nations are committed to price stability.

A STRING OF MEETINGS

Future oil policy is likely to be crafted at a series of meetings in the weeks running up to an OPEC summit on March 27 in Vienna.

The first on Mexico's agenda is a meeting on Saturday with U.S. Energy Secretary Bill Richardson, who will tour Israel, Kuwait and Saudi Arabia after the talks with Tellez.

Even though the United States has been increasingly vocal in its call to let crude flow more freely, Mexico's Tellez said he has not received any pressure from its northern neighbor.

"The United States is demanding absolutely nothing," Tellez said. At the Saturday meeting, "Mr. Richardson will assuredly expound on the state of the American economy given such high prices" and Mexico will outline its own policy.

Mexico will also meet with Saudi Arabia and Venezuela, the other two brokers of last year's supply cuts, on March 2. The location of talks still has not been defined, Tellez said on Tuesday.

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-- Ray (ray@totacc.com), February 15, 2000