Top Financial News
Sun, 10 Sep 2000, 3:03pm EDT
OPEC to Increase Output by 3.2% to Lower Oil Prices (Update5)
By Sean Evers, Alison Flint, Alex Lawler, Joshua Schneyer and Stephen Voss
Vienna, Sept. 10 (Bloomberg) -- OPEC agreed to boost output quotas by 3.2 percent after two past efforts failed to keep oil prices from reaching a 10-year high, contributing to higher U.S. and European interest rates and slowing Asian economic growth.
The Organization of Petroleum Exporting Countries, whose 11 members met in Vienna, will add 800,000 barrels to daily quotas starting Oct. 1, oil ministers said. The group currently targets 25.4 million barrels daily, though it exceeded that total in August. OPEC pumps two of every five barrels worldwide.
Members want to bring oil closer to $25 a barrel from almost $34 last week to ensure high oil prices don't hurt economic growth and spur development of competing energy sources. While the plan may drive crude oil prices lower, lean supplies of heating fuels mean consumers should see little relief, analysts said.
``For consumers -- taxi drivers, truck drivers -- it won't make much difference,'' said Mohammed Abduljabbar, an analyst with the Washington-based Petroleum Finance Co. ``It might knock a few dollars off, but it won't send prices below $30'' in New York.
The increase will leave winners and losers in OPEC, benefiting members such as Saudi Arabia, the United Arab Emirates and Kuwait, which have spare capacity to ship more crude. Other members, such as Indonesia and Iran, may suffer as an inability to pump more leaves them facing lower prices, analysts said.
Analysts expect Saudi Arabia, which holds about 2 million barrels of idle output, to plug any shortfall. Even so, divisions between those who can and those who cannot produce more oil created friction during this weekend's talks. OPEC members slated an exceptional Nov. 12 meeting, after the U.S. Presidential election and before the holy month of Ramadan, to assess today's agreement and determine whether a further boost was required.
Satisfaction
OPEC acted after rising economic growth worldwide spurred demand and outstripped the group's agreements in March and June to increase output. Oil prices have risen 31 percent since OPEC first boosted production this year, on April 1.
Saudi Arabian Oil Minister Ali al-Naimi and Iranian Oil Minister Bijan Namdar Zanganeh -- ministers who had disagreed over the size of the necessary increase -- both expressed satisfaction with the accord. The head of Libya's OPEC delegation, Abdalla Salem El-Badri, said crude prices would drop below $30 a barrel though not as low as $25.
Because members are already producing an estimated 500,000 to 600,000 barrels a day more than their quotas, markets are unlikely to see the promised amount, analysts said. Given shipping schedules from the Middle East to U.S. markets, additional oil may not arrive in time to prevent shortages should the coming winter become colder than normal.
``There is no way that the oil will get to markets quick enough for oil not to go to $40 a barrel,'' said Mark Keenan, a crude oil trader at Prudential-Bache International Ltd. in London. ``It is a 30-day journey from the Middle East and the tankers are all full. And this is very imperfect oil from OPEC, not the kind that refiners want.''
Consensus
The ministers assembled in the suite of OPEC President and Venezuelan Energy Minister Ali Rodriguez at 10 a.m. local time this morning to discuss their strategy. A consensus formed quickly and ministers confirmed the accord just four hours later. Ministers then met briefly at OPEC's headquarters before heading off to a 7 p.m. dinner to celebrate the group's 40th anniversary.
Non-OPEC allies Mexico and Oman are expected to announce an increase supply tomorrow, after OPEC holds a press conference. Russia, another ally of OPEC, said it won't boost exports.
Rodriguez said he anticipated the oil price would decline to between the desired $22 and $28 a barrel. The group kept in place an accord to add another 500,000 barrels to daily output if its price benchmark stayed above that range for 20 consecutive days.
Industrialized nations have called any price of more than $30 a barrel unacceptable. Crude oil futures closed at $33.63 in New York on Friday, and the market reopens at 7 p.m. local time tonight.
Higher fuel prices are filtering through the economy. Union Pacific Corp. last week announced an average 3 percent rate increase to haul freight on the largest U.S. railroad, while Continental Airlines Inc. and other carriers instituted a $20 fuel surcharge on round trips. Dupont Co. last week warned that higher energy costs were hurting profit.
High Taxes
In France, truck drivers ended a weeklong blockade of oil refineries in protest of high fuel taxes that led to shortages at most filling stations. Smaller protests occurred in Germany, the U.K. and Italy.
``Undoubtedly this is a step in the right direction,'' French Finance Minister Laurent Fabius said of OPEC's decision. He said he remained ``prudent'' because it might take time to have an impact on the price of oil, although ``it mustn't take too long.''
Consumers in Europe, where taxes can account for 75 percent of retail gasoline prices, will benefit less from a drop in the price of crude oil than their counterparts in the U.S., where government taxes only account for about a quarter of fuel costs.
Rodriguez reiterated OPEC's long-standing opposition to taxes in consuming nations, saying duties are ``greatly amplifying the effects of rises in the price of crude.''
In the U.S., White House Chief of Staff John D. Podesta credited Saudi Arabia with leading OPEC's effort.
``We're going to have to take a hard look and see whether it's enough, really, to bring (oil prices) back down to historic levels,'' he told Fox News.
The U.S. has threatened to release crude oil from its Strategic Petroleum Reserve -- kept as a buffer to protect in times of war or other emergencies -- if OPEC didn't boost production enough.
An official familiar with Saudi policy said any release of SPR oil would be countered by reduced output from OPEC.
Memories of $10
OPEC had resisted pressure to boost output again because most members, led by Kuwait, Iran and Venezuela, argue the oil market is already adequately supplied with crude oil and the problem lies in a lack of refined products, such as heating oil.
While Saudi Arabia sought an increase larger than that agreed to, a compromise was reached as some members recalled the memory of 1998, when a large OPEC increase sent prices tumbling below $10 a barrel.
Ministers sought to assure the market that all commitments would be kept.
``Everyone is going to be able to meet the new quotas we have put in place,'' said Chekib Khalil, the oil minister for Algeria.
Indonesian oil minister Purnomo Yusgiantoro was less certain when asked whether his quota could be met.
``We'll try,'' he said. |
