Oil boost too late, some say

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Oil boost too late, some say OPEC to increase oil output to ease gas price crunch 800,000 barrels more daily may curtail big price surges

BY WILLIAM DROZDIAK Washington Post

VIENNA, Austria -- Responding to global fears about a looming energy crisis, the Organization of Petroleum Exporting Countries agreed today to raise production by 800,000 barrels a day in the hope of curtailing a surge in crude oil prices.

The decision by 10 OPEC oil ministers to hike output for the third time this year was reached after just four hours of debate at an emergency session in Vienna. The world's leading consumer nations, including the United States and the European Union, as well as many energy-starved developing nations, have been pleading for a production boost to ease a supply crunch that has sent crude prices soaring to a 10-year high of $35 a barrel.

In Washington, Energy Secretary Bill Richardson welcomed the decision but said it ``remains to be seen'' whether such an increase will stabilize energy markets.

Oil analysts said OPEC's move might be too little and too late to correct the market imbalance that has spawned fears of further price spikes for gasoline and heating fuel later this year. The cartel, which provides a third of world oil supplies, has increased production by 3 million barrels a day since the start of this year -- yet prices have continued to climb.

Prices are especially high in Europe, and protests have occurred across the continent. While truckers and others who had imposed blockades across France gradually lifted them this weekend, protesters in Belgium tied up traffic in the center of Brussels on Sunday to protest the high fuel costs.

With Asian and European economies picking up steam and the United States enjoying a sustained boom, the global thirst for oil and other petroleum-based products has reached unprecedented levels and caused crude prices to triple in less than two years. With cold weather approaching in the northern hemisphere, some experts believe record-low inventories and insufficient crude supplies could trigger a market panic that could send heating oil prices into the stratosphere.

At their previous meeting in June, the OPEC ministers vowed to take immediate measures to boost oil supplies whenever prices broke through a threshold of $28 a barrel. But with nearly all OPEC members except Saudi Arabia pumping close to maximum capacity, the promise has proved empty.

Saudi Arabian Oil Minister Ali Nuaimi rebutted criticism about a lack of cooperation by saying his country picked up the slack by pumping an additional 600,000 barrels a day since July. But the incremental rise, along with about 100,000 barrels supplied by Kuwait and the United Arab Emirates, has done little to stanch the price surge.

Oil traders said that given the additional output by the three Persian Gulf Arab states, the latest boost will actually furnish only 100,000 more barrels a day when the accord comes into effect Oct. 1. Gary Ross, a New York oil consultant, said the announced increase ``is not likely to make much of a difference because it has already been priced into the market.''

With heating-oil inventories at rock bottom, some analysts say the production rise might not be large enough to persuade oil refiners to bolster stocks because there is no advantage in doing so while current prices are lower than future prices.

Moreover, any substantial increase in crude-oil output would take months to be delivered and refined into heating oil destined for homes in the northeastern United States, the region deemed most vulnerable should cold weather arrive early this winter.

That scenario has failed to win much sympathy among OPEC members, who fear that any dramatic rise in production to help ease the Western energy crunch could lead to a sudden downturn in prices -- which happened as recently as two years ago.

Indeed, with the cartel producing only about one-third of the world's oil supplies, it no longer exercises dominance over the market. Major non-OPEC producers such as Russia, Mexico and Norway now play a key role in determining supplies. Iraq, which is under U.N. sanctions and no longer shares in OPEC's quota system, is still allowed to sell oil for food and can wield some leverage.

OPEC delegates said Saudi Arabia, the world's biggest oil exporter, sought to win support for a more significant increase to satisfy calls by the United States and European countries for at least an extra million barrels a day. The Saudis are believed to possess enough excess capacity to pump between 2 million and 3 million more barrels a day if necessary.

But Nuaimi insisted his country would not take any unilateral action that might erode OPEC's hard-won consensus and possibly damage Saudi Arabia's recent political rapprochement with its Persian Gulf rival, Iran. Along with Libya and Algeria, Iran has served as a leading ``price hawk'' within the cartel -- arguing that OPEC members deserve to reap huge profits after enduring serious hardship when crude prices plummeted below $10 a barrel.

``We have spent the past two years developing a more cooperative spirit within OPEC,'' Nuaimi said. ``Do you now expect us to throw that away?''

Instead of blaming OPEC for the price burden, he argued that consumer countries should look to themselves to help stabilize the world oil market.

Nuaimi noted that world oil prices, when adjusted for inflation, are still lower now than they were during the oil crisis a quarter-century ago. Such cheap oil, he added, has discouraged the United States from adopting effective energy conservation measures that would change its gas-guzzling habits; the United States consumes one-fourth of the 75 million barrels of oil burned in the world every day while representing only a fraction of the world population.

http://www.mercurycenter.com/premium/front/docs/opec11.htm

-- Martin Thompson (mthom1927@aol.com), September 11, 2000


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