Opec 'fudge' fears force oil prices higher

by JIM ARMITAGE Oil prices remained at dizzying heights today amid fears Opec would not bring in adequate output increases at next month's crunch production meeting. While Opec kingpin Saudi Arabia yesterday said the cartel would look at ways of reforming its pricing mechanism in the light of rocketing prices in recent weeks, analysts and traders feared a fudge.

Richard Savage, oil analyst at SG, said: 'The market is cynical about these statements. What the traders want is a straightforward increase in production, not a tinkering with the mechanism.'

Opec is running a system where, if there is a rise in the 20-day average price of a basket of oil types beyond $28 a barrel, an automatic 500,000-barrels-a-day increase in production will be triggered. Under this so-called price band mechanism, if the basket falls below $22, a 500,000-barrel cut will be imposed. Current prices would easily release the extra 500,000 barrels, but analysts do not believe this to be enough to curb the price rises.

Key October Brent crude futures jumped 90 cents a barrel in New York compared with London's close yesterday to $31.98 in a sharp reaction to the Saudi comments. Today it bobbed around the $31.97 level.

Little comfort came from Opec president Ali Rodriguez, who said he expected further escalation in prices even after supply rises next month.

http://www.thisislondon.co.uk/dynamic/news/business_story.html?in_review_id=312855&in_review_text_id=256894

-- Martin Thompson (mthom1927@aol.com), August 31, 2000