U.S. leaders eye oil reserve

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U.S. leaders eye oil reserve

Monday, September 11, 2000


VIENNA, Austria-- Faced with growing international pressure to drive down stubbornly high oil prices, the Organization of Petroleum Exporting Countries decided yesterday to increase its crude production by 800,000 barrels a day, spokesmen for the group and delegates said.

An official statement on the production increase will be issued this afternoon, the spokesmen said. The OPEC meeting was cut short because the city of Vienna had planned a celebration for the delegates last night to mark the cartel's 40th anniversary. The members were scheduled to meet again this morning to confirm the increase, and to discuss other issues in preparation for a meeting of OPEC heads of state in Caracas, Venezuela, later this month. Just days before this OPEC session, the price of crude oil reached its highest levels since the Persian Gulf War, before receding somewhat Friday. OPEC members said they hope the 3 percent increase from its current daily production of 25.4 million barrels will gradually push oil prices below $30 a barrel -- it has been above $33 -- with most nations asserting that a favorable price would be between $22 and $28 a barrel. Most of OPEC realizes that oil that costs more than $30 a barrel threatens to stunt worldwide economic growth, which, in turn, would cut into revenues member nations earn. But many oil industry experts in Vienna said that although the decision to increase its output signals OPEC's willingness to rein in prices, the increase is probably not enough to result in a significant reduction in the cost of crude oil. They said it probably would bring prices down to about $30 a barrel.

It's an important first step in dissipating the upward pressure on crude oil prices, said Michael Rothman, director of energy research for Merrill Lynch. But we have to see if inventories in the U.S. increase down the line. Indeed, crude oil prices in the United States have been driven up largely because of concern over the low supplies of crude oil and heating fuel compared with the levels in previous years. Most experts say the low inventories stem from high demand for gasoline and diesel fuel during the summer and OPEC's increasingly constrained supply.

The cartel has raised production by nearly 3 million barrels since the beginning of the year, but the growing supply of oil has been quickly absorbed by the booming international economy, although demand has slackened slightly in the last few months as a result of high fuel prices. Prices remain high in Europe, and there has been a wave of protests across the Continent. While truckers and others who had imposed blockades across France gradually lifted them this weekend, protesters tied up traffic in the center of Brussels, Belgium, yesterday to protest the high fuel costs. This latest increase by OPEC, which would probably go into effect Oct. 1, appears to be as much as the group could eke out. Most OPEC nations and countries allied with them, such as Mexico and Norway, are already producing crude at maximum capacity. Only Saudi Arabia and the United Arab Emirates are believed to have spare capacity to devote to increased production.

A major factor in determining the impact of the decision on world crude oil supplies, which is a rough estimate, at best, is how much so-called new oil will be produced now. Since OPEC's last meeting in late June, cartel members have been producing above their official quotas, by anywhere from 650,000 barrels to 750,000 barrels a day -- the bulk of it seeping quietly out of Saudi Arabia, according to industry experts. Yesterday's increase takes into account such cheating, so it remains unclear how much additional oil actually will flow. During the coming months, more overproduction may occur, but volumes will probably be small, given limited extra capacity among OPEC members. Obviously, not all the oil from the OPEC increase will be destined for the United States, and the first shipments of any new oil will probably arrive in early November, a month after the decision goes into effect. In the meantime, if supplies of crude oil and heating fuel in the United States remain low, the chances grow for price spikes and possible shortages of heating oil in the winter. With such a scenario looming in an election year, the Clinton administration and the Department of Energy are considering releasing oil from the country's 570-million-barrel Strategic Petroleum Reserve to replenish commercial crude and heating oil reserves, industry experts said.

The energy department is also creating a 2-million-barrel heating oil reserve for the northeastern part of the United States, where most of the country's heating oil is consumed. The new idea of tapping the Strategic Petroleum Reserve would apparently entail giving oil from the reserves to refineries this autumn, with the refineries required to return it to the reserve at a later date.


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


oops a double whammey

-- Martin Thompson (mthom1927@aol.com), September 12, 2000.

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