Gas price relief remains distant

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Increased oil output may be on horizon, but price relief remains distant Mexico's Oil Minister Luis Tellez speaks following a meeting with oil ministers from Saudi Arabia and Venezuela Thursday in London March 3, 2000 Web posted at: 4:19 a.m. EST (0919 GMT)

LONDON -- Although an important handful of oil-producing countries have agreed that a boost in crude oil production would bring stability to oil producers and oil consumers alike, it will likely be some time before the consensus will have any real effect on stocks of home heating oil and gasoline.

In announcing the agreement forged while meeting Thursday, oil ministers from Saudi Arabia, Venezuela and Mexico pulled up short of making any committment on how much or when production may be increased.

Definitive action on such matters will not likely be taken until the Organization of Petroleum Exporting Countries holds its much-anticipated meeting on March 27 in Vienna.

However, regardless of any action OPEC may take, industry analysts note that most oil imports take 40 days to arrive on U.S. shores. Therefore, according to Leo Drollas, chief economist of the Center for Global Energy Studies in London, the effects of increased oil production would not reach U.S. consumers until mid-May at the earliest.

Relief in sight In the meantime, relief from high heating bills will have to come in part from a change of seasons, and in part from governmental assistance.

President Clinton was to meet Thursday afternoon with members of Congress from northeastern states, where heating oil prices have as much as doubled in the face of short supply. Clinton has asked Congress for $600 million in emergency funds to help low and moderate income families under the Low Income Heating Assistance Program (LIHEAP).

As for gasoline prices, now averaging around $1.50 per gallon, the most immediate relief in sight is that offered by the change of seasons. As temperatures rise, demand for heating oil softens just as a lull in gasoline consumption generally falls ahead of the summer driving season. The combined result could amount to a springtime decrease of 10 percent in oil prices overall.

Oil Ministers from Saudi Arabia, Venezuala and Mexico met in London on Thursday to discuss the world's oil shortage The quest for more meaningful relief has the White House welcoming statements from oil ministers who have said that countries which export petroleum should boost output to ease global oil prices.

"The public statements made by the ministers confirm what we have been saying that both producing countries and consuming countries need stability. They recognize that in their announcement," said White House Press Secretary Joe Lockhart.

"Now we'll be looking for the details but I think it is important the major oil producing countries have indicated that they believe that volatility is harmful and they want to return to a more stable price."

"Uppermost in our minds is to maintain stability in the markets," Saudi Oil Minister Ali Naimi said at a news conference Thursday. "We recognize that there is a need for additional production. The issue is when and how much."

In terms of rank, Saudi Arabia is the world's No. 1 oil exporter, Venezuela has the third-largest output in OPEC, while Mexico is a major non-OPEC oil producer.

"We are convinced that we have to increase production this year," said Venezuelan Oil Minister Ali Rodriguez.

Pressured prices Consumers are digging deeper to pay for their heating and motoring fuels today because oil exporters inside and outside of OPEC cut production in 1998 and 1999 as a means to boost historically low prices. Since then crude has sky-rocketed from $10.72 a barrel on Dec. 10, 1998, to a nine-year, post-Gulf War high on Wednesday of $31.77 in trading on the New York Mercantile Exchange.

As upward pressure on prices continue, concerns grow that the increases may endanger economic growth in oil importing countries.

Such concerns in recent weeks have brought increased pressure to bear on oil exporters from the United States and other importers wanting more oil pumped in order to ease prices. That pressure was manifest when a congressman on Wednesday introduced legislation that would cut off military assistance to any oil-exporting nation found to be involved in price manipulation.

Thursday's announcement from oil exporters had little influence on oil markets, where futures prices for light, sweet crude for delivery in April rose as high as $32.15 in New York, then eased off somewhat to close at $31.69.

Some analysts believe that OPEC, along with key non-OPEC members, will decide to increase production when it meets in March. However, some analysts say the ministers' refusal to release further details about the expected increase sends confusing signals to oil markets.

After Thursday's meeting, Drollas predicted contracts for future oil delivery would decline in value as traders anticipate the promised increase in output in coming months.

Lehman Brothers analyst Gareth Lewis-Davies predicted OPEC would have to raise production by about 9 percent -- or 2.5 million barrels per day -- in order to bring crude prices down to a sustainable level of $20-22 per barrel.

Adding to the uncertainty is that OPEC remains divided over what exactly to do. Saudi Arabia, Venezuela and other moderates favor lower prices, while Kuwait, Iran and others seem happy with prices at current levels, and therefore resist calls for higher output.

Politics, also, tend to muddy the picture further. The Saudis, for instance, who depend on the United States for political and military support, may prove reluctant to seem too eager to comply with U.S. demands for increased production.

"They don't want to be seen to be kowtowing to the U.S.," Drollas said. "They have their pride."

http://www.cnn.com/2000/WORLD/meast/03/03/opec/index.html

-- Martin Thompson (mthom1927@aol.com), March 03, 2000


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