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Saudi oil official: Fearing a fall in revenue, OPEC won't increase oil production By Tarek Al-Issawi, Associated Press, 2/25/2000 18:14

DUBAI, United Arab Emirates (AP) Oil-producing nations likely won't increase oil production before July because they fear a sharp fall in revenue, a Saudi oil official said Friday.

The remarks, made on condition of anonymity, were likely to confirm market suspicions that producers' talk of ''stable prices'' won't mean fast relief for consumers.

In New York, crude oil for April delivery rose 38 cents to $30.35 on the New York Mercantile Exchange. Brent crude closed at $27.48, up 11 cents.

The Saudi official said there was an implicit agreement between oil-producing countries and those outside the Organization of Petroleum Exporting Countries to increase production ''gradually as of the third or fourth quarters of the year.''

Countries that import oil had hoped that OPEC ministers, scheduled to meet at the end of March, would increase production to bring down prices starting in the April-June quarter. No final decision is expected before the OPEC meeting.

In the past two weeks, some oil producers, such as Mexico, have called for OPEC to increase production beyond the current 22.976 million barrels a day set by an agreement in March last year.

The market has closely watched the flurry of meetings held over the past three days, and will be monitoring a March 2 meeting in London involving the oil ministers of Mexico, Saudi Arabia and Venezuela the three nations that put together the March 1999 agreement. The deal slashed producers' output by more than 4 million barrels per day and sent prices soaring.

Prices have nearly tripled since then, surging to the highest levels since the eve of the 1991 Gulf War.

The Saudi oil official said that producing nations feared that increasing output in the second quarter would result in a sharp fall in prices, adversely affecting their revenues.

He said oil producers wanted to make sure that oil stocks in major industrialized nations were low before an increase is implemented, otherwise, prices would fall.

Later Friday, Saudi Oil Minister Ali Naimi said there was a possibility demand would fall in the second quarter.

Officials have offered a variety of opinions in recent days primarily off the record on oil production. Naimi said Friday he could not offer specifics.

''We cannot specify a stance now by producing countries on whether to continue with the production cuts agreement or to increase production,'' Naimi told reporters after receiving U.S. Energy Secretary Bill Richardson, who arrived from Kuwait.

Richardson was to hold talks with Saudi Crown Prince Abdullah and Naimi on Saturday.

The United States, the world's largest oil market, has been at the forefront of calls to producing countries to raise their rates of production to increase the world's supply of oil and bring down prices.

Following a meeting of Gulf oil ministers in the Saudi capital of Riyadh on Wednesday, officials said the ministers favored a daily increase in production of between 2 million and 2.5 million barrels about 8 percent to 10 percent.

Some analysts have said an increase of at least 2 million barrels a day is needed to stabilize markets and make a sufficient impact on oil stocks.

Until the supply is increased, gasoline and heating prices are expected to remain high.

-- canthappen (n@ysayer.com), February 26, 2000

Answers

Does this mean that the predictions of $5.00 a gallon gosoline are about to be realized? Are their fields actually able to produce more? Is it a Y2K problem that prevent them from increasing production? Just something to think about.

-- David Whitelaw (Dande53484@aol.com), February 26, 2000.

These guys learned how to do the Clinton Spin on production limits. They want the price to go higher but fear public reaction so they say that they have to keep production low so that prices do not fall down to the low levels they previously suffered through. Perhaps they have a level in mind such as $35 a barrel and when the price gets there, they will increase production slightly to preclude further increases. They are somewhat justified in wanting higher prices. Look how low prices got last Spring $12 a barrel is rediculously low. Kinda like the farmers, produce too much and the prices fall drastically. Higher prices this summer guaranteed.

-- Moe (Moe@3stooges.gom), February 26, 2000.

Bad news indeed. The Arabs aren't stupid. If they maintain the high prices too long, domestic wells and alternative fuels such as oil sands and oil shale might become an attractive alternative. The technology is there, but the time to produce alternative fuels in a quantity that would be of impact to imports would be at least 5 years. They've got us and they know it.

-- trafficjam (road@construction.ahead), February 26, 2000.

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fear public reaction??? give me a break. they couldnt care less about public reaction. why should they? they're holding the ball, in cahoots with good ole USA i'm sure.

there is today - as i write - virtually free energy availble in the form of liquid hydrogen, which can be produced, with essentially NO environmental pollution, by hydrolyzing water. unfortunately most americans have no idea of what is possible, nor do they care. all most people care about is the cost of oil and gas.

it will take a min of 10 - 20 years to switch to a hydrogen based economy and escape from the oil stanglehold. i think we're a bit late. but it can be done.

-- lou (lanny1@ix.netcom.com), February 26, 2000.

Oil stranglehold allright, because even if oil gets to $45 dollars the barrell, marginal oil producers would still be discouraged to invest again in producing their marginal wells as they would never really know whether prices may go back down, just as happened a year ago. No one really knows whether prices will hold at a somewhat high, profitable level or whether its a rollercoaster. Again, this favors the Arabs.

-- George (jvilches@sminter.com.ar), February 26, 2000.

Fuel cells are already begining to come on- will be on the market next year- some really big heavies into them such as G.E. Also, just possible Ness, in Israel, about to come up with the largest reserve ever found. From the research I did prior to Jan. I, not a chance in the world that Saudi, Iraq, Ven., Mexico, Nigeria, etc., etc. would be in real production after the bug. That doesn't even take into account our lower production from crippled wells, pipelines, and refineries. One thing this is all good for- sure lowers pollution. Another positive- don't kid ourselves, the Russian, Chinese, etc. are in just as bad if not a lot worse shape than we are. All this sabre rattling is just a lot of boys pretending they are dangerous. If the Russians or the U.S. tried to fire off nucs, they know the chances are that the non-compliant systems might land them right back in their own laps. We are all in it together.

-- romain morgan (watchr@hotmail.com), February 26, 2000.

Yes, we can transition to a hydrogen based economy. Fuel cells will be available in a year or two, and yes, results to date look good.

However, it will still take 20 years, as mentioned by lou. The problem isn't getting one or two devices out, it's getting enough sold to make a difference, to eliminate our dependence on oil.

The hydrogen and hydrocarbon technolgies will have to exist in parallel for some time. Sales, distribution, and maintenance networks need to be set up for hydrogen technology. People who have hydrocarbon technology -- cars, truck airplanes, fuel oil furnaces, etc. -- can't be expected to empty the piggy bank tomorrow to buy hydrogen equipment.

Most of all, we need a national effort, complete with tax credits, tax penalties, and proper use of a bully pulpit to introduce hydrogen. We don't have it, and it will take 20 years just to get the government thinking along these lines.

We got a wake up call back in 1970. Then we rolled over, hit the snooze button, and are waking up after a 30 year nap.

-- rocky (rknolls@no.spam), February 26, 2000.

This is such baloney. I heard from a reliable source that Saudia Arabia has definitely had Y2K embeddeds problem. Who says they could produce more even if they wanted to?!

-- youactually (believe@these.guys?!), February 26, 2000.

Romain,

Is the largest reserve ever found in Israel, the same one that has been known about for a few years or a newly discovered one? Are you saying Ness might be ready to bring the oil out of this reserve? I have been wondering about the oil reserve in Israel for some time. Any information about it would be most welcome.

-- Maggie (song bird@iwon.com), February 26, 2000.

David Whitelaw, trafficjam and others:

There is another Y2K problem in addition to embeddeds that may be impacting OPEC thinking on production and price levels:

To satisfy Y2K demand for cash liquidity the FED and the US Treasury swapped T-Bonds and T-Bills with banks for greenbacks resulting in a 1999 money supply increase of if I recall correctly about 27%.

Recently, Sec Treas, Larry Summers surprised and angered bond traders by prompltly buying up the long bond and stating that the US Treasury would reduce the issuance of new T-Bond debts. Prez Clinton has stated that we can pay off the national debt again from memory I think he said by 2011.

This is called monetization of debt and instead of paying high rates of interest on the debt, the government replaces the debt with fiat dollars which weakens the dollar's purchasing pwer due to INFLATION.

Real assets producers like OPEC are not going to give up precious crude for eroding dollar. They will more dollars per barrel and may insist on payment in real assets like gold backed Dinars or Euros as opposed to cheap dollars.

The bottom line for all is to keep pace with inflation by matching wage and price increases to the inflation rate.

-- Bill P (porterwn@one.net), February 26, 2000.