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Oil prices surge Crude oil futures climb despite OPEC decision to boost production September 11, 2000: 2:19 p.m. ET
NEW YORK (CNNfn) - Crude oil prices soared in late afternoon trading Monday, reversing earlier losses despite the Organization of Petroleum Exporting Countries' decision to lift output by 800,000 barrels per day.
U.S. light sweet crude for October delivery rose $2.09 to $35.72 per barrel on the New York Mercantile Exchange. London's benchmark Brent for October delivery gained $1.83 to $33.98 per barrel on the International Petroleum Exchange.
Crude prices last week hit 10-year highs, with Brent rising as high as $34.55 in London and sparking international pressure on OPEC to pump more oil.
Analysts said the rise was technical in nature rather than driven by fundamental factors. "It's a little too early to read the full market impact of the OPEC production increase," said Peter Gignoux, manager of the petroleum desk at Salomon Smith Barney in London.
OPEC confirmed it agreed to raise production by 800,000 barrels per day (bpd), slightly above the pre-meeting expectations of 700,000 bpd, in an effort to stem the recent supply crunch. A formal announcement from the 11-member group came from the group's headquarters in Vienna, where ministers and officials completed their semi-annual meeting.
OPEC's pact will be reviewed at an extraordinary meeting Nov. 12. It is the third time since April that OPEC has released more oil to the market in an attempt to dampen sky-high prices.
No decision was made at the meeting regarding a successor to Rilwanu Lukman, OPEC's secretary general. A formal announcement about the next leader of the cartel is expected in November.
Soaring prices for refined petroleum products had prompted calls from consumer advocate groups -- particularly in Europe - for their governments to act to alleviate the squeeze on businesses that depend on fuel.
Lukman spoke with CNN in Vienna and defended the cartel's position, insisting the high price of crude would not result in a global economic downturn:
"We don't see a recession in the offing due to oil prices. Oil prices are not going to cause recession in the global economy." He pointed out that industrialized economies "are less dependent on oil than they were before."
Many industry experts already were predicting Monday that OPEC's action is little, too late - particularly with the approach of winter and the anticipated seasonal increase in demand for oil, particularly in the colder climes of North America.
"We could see prices come down by $2, maybe $1 more, but then it is likely to begin creeping up again," said Axel Busch, a senior correspondent with the Energy Intelligence Group, which publishes newsletters and reports on the global oil market. "With or without a production increase, stocks are down at least 50 percent from last year's levels."
OPEC said it will raise its output 3.1 percent to 26.2 million barrels a day for 10 of its 11 members; the tally excludes output from sanctions-bound Iraq. The agreement will continue until Nov. 12, when OPEC members will meet again to assess market conditions. The cartel normally meets only twice a year, in March and September.
The new deal may not be enough to temper growing frustration in Europe, where the price of gasoline has skyrocketed to as much as 80 pence a liter, or roughly $4.50 a U.S. gallon. Truckers, farmers, taxi drivers and fishermen in the United Kingdom, France and Italy have been railing against their governments to protest the high taxes they levy on gasoline, compounding the oil-price pinch.
The recent price crunch stems from a decision by OPEC members in 1999 to curb oil output to reverse the preceding years' decline in prices. Approximately a year ago a barrel of oil traded at about $19, while in June 1999 it sold for as little as $12.
Crude oil prices have settled above $28 per barrel every trading day since Aug. 3. Last Thursday, the average OPEC price was $33.84 per barrel.
"Greedy" OPEC to blame?
Busch said OPEC members probably should have begun boosting production much sooner than they did to avoid the kind of price spike that has happened in recent weeks.
"They got greedy," said Busch. "They kept the curb in production up for too long. If they had started to lift production last September, then we likely wouldn't have this problem right now."
Even so, the International Energy Agency Monday said OPEC already overproduced as much as 400,000 barrels per day in August. According to the Paris-based watchdog, OPEC's monthly production averaged 25.84 million barrels, compared with the 25.40 million barrels expected.
"If OPEC were to increase its production by 500,000 barrels per day, it would, to a large extent, be formalizing existing levels of overproduction," the report said. "Whatever the outcome, producers will likely take it upon themselves to increase production in excess of formal targets," it said.
Including Iraq, the IEA estimated that OPEC output surged to 665,000 barrels per day in August
-- Martin Thompson (email@example.com), September 11, 2000
Oil now over $35 a barrel? Wow -- $40 oil here we come.
-- RogerT (rogerT@c-zone.net), September 11, 2000.