Crude remains near 9-year high By John W. Schoen MSNBC Feb. 16  Oil prices remained near $30 a barrel Wednesday, the highest level since the Gulf War 9 years ago, as producers sent conflicting signals over whether or not they intend to raise supplies. Amid growing concerns about the impact on American consumers and the economy, President Clinton said he had not ruled out the use of emergency U.S. oil reserves to force crude prices lower. WITH WORLD OIL inventories reaching rock bottom, OPEC continues to hold production at levels about 2.7 million barrels below worldwide demand of 76.9 million barrels, according to the International Energy Agency. Tight supplies, which have been forcing prices higher, are not likely to ease before OPEC's upcoming production meeting on March 27 in Vienna. But most oil industry analysts have been betting that OPEC will open the oil spigots soon thereafter, sending prices skidding back to the high-teen or low-20s  where they spent much of the 1990s.

"It's 50-50 at this point if they are going to increase in April or in July," said Lehman Brothers oil analyst Paul Cheng. "But one way or the other you're going to see more barrels  through official change or in cheating."

MIXED SIGNALS Oil producers remain divided on when to ease their supply curbs. Production limits set last year, which are due to expire at the end of March, have kept some four million barrels daily off the 75 million barrel a day world market.

Leading Latin American producers Mexico and Venezuela now are calling for more production.

"What's required is to have a policy that allows more oil to be put on the market," said Mexican Oil Minister Luis Tellez. He called on producers to raise supplies, saying the current price of crude is "too high."

Venezuelan sources told Reuters on Friday that one proposal being aired was to add 1.7 million barrels a day from June. Others said a smaller rise in volume was likely.

But price hawks like Kuwait, Libya and Algeria want to keep prices as high as possible for as long as possible and are pushing an extension of output restrictions. Kuwait said on Tuesday it saw consensus among producers to extend the curbs.

All eyes are on top producer Saudi Arabia, but so far Riyadh so far has signaled only that it would consider the possibility of small extra volumes.LOWER PRICE FORECASTS Amid uncertainty over the price outlook, U.S. crude oil futures for March delivery hit a peak of $30.45 a barrel on Tuesday in New York, before backing off 5 cents to $30.20. In London trading Wednesday, crude hovered just below $30 a barrel, trading at $29.94.

Despite the recent price surge, Wall Street analysts who follow the oil markets are predicting the average price for all of 2000 will fall to about $21, according to those surveyed by First Call. Wall Street analysts aren't alone: earlier this month, the World Bank forecast oil prices falling below $20 later this year.

But a recent surge in home heating oil prices has focused concerns that increased production may not come soon enough to relieve the pain on consumers. There are also fears that sustained higher oil prices could bring inflationary pressures on the world's economy. Higher oil prices have already raised the price of airline tickets and added to shipping costs.

With oil supplies dwindling, the U.S. Congress has been putting pressure on Washington to get tough with OPEC producers.

Clinton Tuesday left open the option of releasing some of the more than 500 million barrels stored in emergency U.S. petroleum reserves to bring oil prices back down. Analysts say additional supplies of just a few million barrels a day would send prices tumbling.

"I have not closed off any options. I am monitoring this on a daily basis. It's a deeply troubling thing," Clinton told reporters.

The Clinton administration had said it was putting off a decision whether to release oil from the reserve until Energy Secretary Bill Richardson returns from talks with Mexico, Saudi Arabia and Kuwait later this month.

OPEC's Saudi Arabia and Venezuela and non-OPEC Mexico, the architects of the current cuts, will meet on March 2, in advance of the full cartel's meeting, to decide what to do after the existing cuts expire at the end of next month.

Clinton said there would be some important meetings among oil-producing countries within the next few days, "We will know more about this in a week or 10 days about what the trends are going to be," he said.

HIGHER GAS PRICES Some analysts are already predicting higher gasoline prices this summer.

Gasoline prices  now averaging $1.41 a gallon in the U.S.  could stay high into the summer travel season, even if OPEC ministers boost oil production at their meeting next month. Thats because gas inventories are so tight, it will take time to bring supply in line with demand, analysts say.

A managing director for global oil markets at The Petroleum Finance Co. in Washington suggests people better get ready for national gas prices averaging $1.60 a gallon before they begin easing.

Because refineries need to build up gasoline inventories in advance of peak demand, OPEC would have to boost production soon to head off a gasoline price squeeze.

"We are in an era right now that supplies are the tightest they have been in 15 to 20 years," Phil Flynn, a crude oil analyst with Alaron Trading, told CNBC TV. "And there is no room for error. We lose a refinery, we have one problem, all of a sudden we have a situation like we saw in heating oil."

Over the longer run, higher oil prices should prompt the major oil companies to begin producing more on their own  helping to ease supply shortages. Some major oil producers have raised production spending for this year. But the last major increase in production  just before prices crashed in 1998  left a painful drain on the industry's balance sheet that it is just now working through.

"They're being cautious," said Merrill Lynch analyst Steven Pfeifer. "They recognize that in November of 1997, they raised volume at just the wrong time. So to the extent they take action they're going be conservative and not risking rebuilding inventories."

OIL STOCK TURNAROUND Despite the steady surge in oil prices, stocks of major oil producers have been falling on fears that the price of crude oil was soon headed lower. But with crude oil pushing through $30 a barrel, analysts say these stocks look cheap. Investors seem to be taking notice, as oil stocks rallied Tuesday.

Wall Street analysts have been upgrading their ratings on major oil producers over the past several days. On Friday, Merrill Lynch upgraded Royal Dutch Petroleum and Shell Transport. On Tuesday, Bear Stearns upgraded Unocal and Lehman Brothers upgraded Texaco.

Oil stocks are also looking attractive because they're getting so cheap. Even as crude oil prices have climbed steadily in the past six months, stocks of major oil producers have been falling.

"The stocks have been going south because people have been anticipating that OPEC is going to do something to raise production, and when they do something its going to be too much," said oil analyst James Van Alan at Janney Montgomery Scott.

Investors have also been focused on the uneven profit impact of higher crude prices. Major integrated oil companies benefit on their "upstream" operations  those involved in producing and selling crude. But until recently, profits from "downstream" refining operations have been squeezed  because until recently prices of refined products like gasoline and heating oil haven't risen as fast as crude prices.

Oil company profits also have been improving as mergers and cost-cutting make it cheaper to produce, refine and sell each barrel of oil. BP Amoco Tuesday said cost cutting added $2.5 billion to its bottom line in 1999. Similar programs throughout the industry are expected to continue to boost profits.

"These companies are still focused on cost reduction," said Pfeifer. "Most of them are about halfway through the cost reductions begun last year."

The Associated Press and Reuters contributed to this report.

-- ExCop (yinadral@hotmail.com), February 16, 2000

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-- ExCop (yinadral@hotmail.com), February 16, 2000.

Crude Oil $29.08 -$0.25 (-0.85 %)

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