Fair use for educational/research purposes only! Oil prices spike as supply shrinks Light crude up more than $1 a barrel; Clinton says that he'll lobby OPEC August 23, 2000: 4:44 p.m. ET

NEW YORK (CNNfn) - Crude oil prices jumped in New York Wednesday after a report showed that U.S. oil stocks continued to dry up amid high demand and few signs that OPEC countries will boost oil production enough to reverse pricing any time soon.

The run up in prices prompted President Clinton to say he would talk to Nigerian President Olusegun Obasanjo about OPEC production levels during his visit to the African nation this weekend. But he admitted it may be difficult to find the additional supply needed to reduce prices.

"We have to look where there is excess capacity ... part of this is a question of whether the OPEC nations can increase their production," Clinton said.

Clinton told reporters in the White House Rose Garden that crude prices needed to drop to a price range in the low-to-mid-$20 a barrel to sustain economic growth. But prices continued to move in the other direction Wednesday.

Light crude oil for October delivery jumped $0.76 to close at $31.98 a barrel on the New York Mercantile Exchange. Prices hit as high as $32.80 a barrel earlier in the day.

The American Petroleum Institute reported late Tuesday that oil stocks last week unexpectedly fell once again -- by 7.77 million barrels to 279.7 million barrels. That put it just above a 24-year low set earlier this month due to a revised figure for the week ended Aug. 4. All these reports indicate that imported oil will have to continue to feed hearty summertime demand in the United States.

"It's really showing that we're burning this oil here in America at a very rapid pace," oil analyst Jordan Horoschak of the S&P Equity Group told CNNfn's Before Hours program Wednesday. "Refineries are churning out gasoline as quickly as Americans are using it."

Heating oil futures also rose in New York, trading to 94.4 cents a gallon, up 4.5 cents.

While inventories a week earlier had been higher than expected, analyst Lawrence Eagles said the trend still is downward, suggesting that oil prices may have higher to go still.

"You have to look at the series trend, and [prices] are definitely in an upward move," said Eagles, an oil analyst at brokerage GNI in London.

Production lagging rising prices

However, Petrodata Research, the forecasting unit of OneOffshore, Inc., said in a report released Wednesday at the Offshore Northern Seas conference that the recent resurgence of oil prices to above $30 a barrel may have arrived too late to boost production next year, while companies have put the windfall to other uses to please shareholders.

"The new cash has not been spent on drilling wells, however, but on defending their balance sheets, buying back shares and competing with high growth technology stocks," said Petrodata analyst Maarten van Mourik.

Most of the world's biggest oil companies are only considering a rise in exploration and production expenditure next year, with memories of $10 a barrel oil still fresh on corporate minds.

The shortage comes partly from the fact that when oil prices were depressed, it wasn't profitable to turn out products like heating oil or gasoline, so refineries weren't compelled to stock up on oil that they now need, Horoschak said. (284K WAV) (284K AIFF)

"Without any further word from Saudi Arabia about production," said Eagles, "there is no reason to believe that we won't see prices move higher."

Saudi Arabia, the world's largest oil producer, as well as Kuwait and the United Arab Emirates are the only OPEC members that could boost output because nearly all other member states now are at full capacity, Eagles said. OPEC is expected to agree to increase production by about 500,000 barrels a day when it next meets Sept. 10.

The cartel has adopted a mechanism that stipulates production will increase by that amount if its basket of average crude prices stays above $28 a barrel for 20 working days.

If the stockpiles don't increase and prices don't fall with the next increase, it could cause a panic in the market and drive prices even higher, Horoschak warned.

"They don't have that much extra capacity to put on line and offer the market," he said. While he still predicts prices will fall to $27 a barrel by the end of the year, he said it now appears that forecast will be difficult to achieve.

Futures for Brent crude, the benchmark oil traded in London, also gained $1.07 to $31.00 a barrel in Wednesday trading on the International Petroleum Exchange there.

http://cnnfn.cnn.com/2000/08/23/europe/oil/

-- Martin Thompson (mthom1927@aol.com), August 23, 2000

Answers

The interesting part...

Saudi Arabia, the world's largest oil producer, as well as Kuwait and the United Arab Emirates are the only OPEC members that could boost output because nearly all other member states now are at full capacity

-- Martin Thompson (mthom1927@aol.com), August 23, 2000.

This is quite a stew that is brewing here.

Throw into the pot the fact that Nigeria, Venezuela, Indonesia, Mexico, and Norway are DECREASING their respective outputs (can't stay up), and you've got a recipe for disaster.

-- JackW (jpayne@webtv.com), August 24, 2000.

My big question is will oil prices spike high enough during the next two and a half months to effect the outcome of the election?

-- QMan (qman@c-zone.net), August 24, 2000.

All we hear these days from the Clinton-Gore team is the drum beat of wonderful economy, wonderful economy, wonderful economy. Boy, can this coming oil price run-up turn that hypothesis on its head in a hurry.

I, also, would like to know, with the pass-through lead times, if this will come in time to pinch the consumer's pocketbook, hard, and influence who is the next president of the United States.

-- Uncle Fred (dogboy45@bigfoot.com), August 24, 2000.