Cheaper oil? Don't count on it : LUSENET : TB2K spinoff uncensored : One Thread

Saturday, September 9, 2000, 12:00 a.m. Pacific

Link Cheaper oil? Don't count on it

by Bruce Stanley The Associated Press LONDON - Americans fret about home heating oil costs. French truckers are blocking roads over gasoline prices. Asians are debating how to fight inflation stoked by costlier oil.

At almost any point on the compass, consumers in oil-importing nations are angry about high energy prices and fearful that worse is yet to come.

Yet ministers for the 11 member-countries of the Organization of Petroleum Exporting Countries (OPEC) aren't expected to provide much comfort when they meet tomorrow in Vienna, Austria, to consider whether to boost their production of crude.

Analysts predict that OPEC will agree to raise its official output by no more than 800,000 barrels a day - just 3 percent of each member's production quota. They say such an increase would do little if anything to rein in oil prices, which have more than tripled during the past 20 months and continued rising this week to new post-Gulf War highs.

"There's no comfort factor anywhere," said John Toalster, an independent energy consultant in London. "It's a severe situation, no doubt about it."

Since OPEC slashed output in March 1999, oil prices have surged to levels that threaten to derail the locomotive of global economic growth - the United States - and snuff out fragile recoveries in Asia and Latin America.

Crude prices that languished at less than $11 a barrel in December 1998 bounced above $35 this week on commodity exchanges in New York and London. Oil prices fell $1.76, or 5 percent, yesterday in New York, the first decline in five sessions, but they still closed at a high of $33.63 a barrel.

Developing countries are finding that higher bills for imported oil are eating into funds needed for social programs and investment. Citizens of wealthier nations are feeling the pinch, too, in pricier visits to the gas station and soaring prices for heating oil.

OPEC Secretary General Rilwanu Lukman suggested Thursday that the group's members will agree in Vienna to increase their production of crude.

"If we're satisfied the market needs more crude oil, we will put more in if we are in a position to - and we probably will," he told the British Broadcasting Corp. in an interview.

OPEC, which pumps a third of the world's oil, has an official daily output of 25.4 million barrels, excluding Iraq, which exports its crude under a special U.N.-monitored program.

However, the cartel's members already are producing 674,000 barrels a day above their quotas, said Leo Drollas, chief economist at the Center for Global Energy Studies in London.

Drollas said an increase of 500,000 barrels a day was "in the cards" in Vienna, but he warned it would do little more than put an official stamp of approval on OPEC's current overproduction and do nothing to cool prices.

To get prices below $30 a barrel, an additional 800,000 to 1 million barrels need to be produced each day, he said.

An increase of this size could only come from Saudi Arabia, the No. 1 producer in OPEC and the world. Except for perhaps Kuwait and the United Arab Emirates, no other OPEC member has the spare capacity.

Saudi Crown Prince Abdullah told President Clinton in New York Wednesday that his country was committed to pushing prices down to around $25 a barrel. He said OPEC would raise daily output by around 700,000 barrels, according to a source familiar with the talks.

Saudi Arabia and its OPEC partners recognize that high prices can backfire on them in the long run. If prices stay high, importers will seek cheaper substitutes for oil, and non-OPEC producers will find it profitable again to pump from high-cost wells. Given the brittle balance of supply and demand, a glut of new oil could send prices crashing.

In the U.S., refiners are holding off in hopes of just that.

"There's not an oil shortage right now. There's a reluctance of refiners to buy expensive oil," said Peter Gignoux, head of the petroleum desk for Salomon Smith Barney in London.

The reason is that prices for futures contracts of crude are lower than the current spot price - a sign that most traders expect oil prices to fall in coming months.

Heating oil inventories are already low because refiners spent most of the summer processing gasoline and fearful of stocking up on expensive crude.

Even if new Middle Eastern crude were to enter world markets, it would take 45 days to arrive in the form of heating oil at homes in New England.

-- Gasman (, September 10, 2000

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