BEIRUT, 3 June 2004 — Red-hot oil prices cooled slightly yesterday after Saudi Arabia promised to boost output to bring down record high prices, though traders remained skeptical of its chances of success.
Minister of Petroleum and Mineral Resources Ali Al-Naimi said ahead of an OPEC meeting in Beirut the Kingdom was “fully ready” to increase oil production in an effort to return prices to OPEC’s target range of $22-28 a barrel.
Organization of Petroleum Exporting Countries ministers gathering in the Lebanese capital for a formal meeting today are under heavy pressure from the United States and European nations to open up the taps.
European Union finance ministers expressed concern that skyrocketing oil prices could jeopardize Europe’s fledgling economic recovery, calling on OPEC again to act to calm the market.
Even before the meeting, the United Arab Emirates said it would increase its oil production this month by 400,000 barrels per day (bpd) over its OPEC quota, according to the country’s state news agency WAM.
Algerian Energy Minister Chakib Khelil even proposed suspending OPEC production quotas “for a period of time”, though Kuwait and Qatar said they opposed such a move.
With OPEC preparing to open the taps, the price of benchmark Brent North Sea crude oil for delivery in July fell by 68 cents a barrel to $38.40 in late afternoon deals in London.
New York’s light sweet crude contract for delivery in July dropped 93 cents a barrel to $41.40 in early deals.
The US crude oil price on Tuesday had surged $2.45 to a record closing level of $42.33 a barrel in New York. Adjusted for inflation, however, prices remain well below levels seen during the oil shocks of the 1970s.
Prices rocketed after 22 people, including 19 foreigners, were killed in a weekend attack and hostage taking at oil company offices and a housing complex in the eastern Saudi city of Alkhobar.
But Naimi said terror attacks in his country had not affected its oil and gas production.
However, there are concerns that any extra oil from the 11-member grouping would come too late to ward off the threat of gasoline shortages in the United States, where fuel demand is soaring ahead of the peak summer period.
OPEC is already producing some two million bpd above its official ceiling and analysts say only Saudi Arabia has any significant spare capacity left.
“Possibly the most drastic action OPEC could take would be to suspend quota levels altogether,” said Barclays Capital analyst Kevin Norrish.
“We think that unlikely, but even this kind of move may not be enough to push prices down by much in the short term, given the level of political uncertainty in the Gulf region at present.”
Rampant demand from China and the United States as well as US refinery bottlenecks mean that prices are unlikely to fall significantly any time soon, analysts said.
“This is a crisis that’s been long in the making,” said Juan Carlos Boue at the Oxford Institute for Energy Studies.
“It’s not strictly a matter of oil being scarce, although it’s not exactly abundant. But the problem is that there’s a scarcity of certain products, particularly in the United States.”
According to another report, OPEC may give Saudi Arabia a free hand in increasing oil output beyond its quota, a Gulf official said here yesterday.
The official, speaking on condition of anonymity, told AFP OPEC could agree at a meeting here today on a new production ceiling of about 26 million bpd, which would match current actual production.
The group may also accept that Saudi Arabia and other members which have an extra production capacity can raise their output beyond official quotas, if there were a demand for more oil in the market.
“This proposal will be discussed tomorrow,” said the official.
The group is producing way above its official ceiling of 23.5 million bpd, in force since April 1.
Iraq is not bound by the quota system in order to make up for the losses incurred by the past wars and UN sanctions. The OPEC ceiling does not take into account its production which currently stands at about 2.7 million bpd.