Oil prices ease on report of output boost
Copyright 2000, United Press International
September 7, 2000
Crude oil prices eased slightly today from a 10-year high of $35.19 a barrel after reports that Saudi Arabia assured the Clinton administration of an imminent output increase of about 700,000 barrels a day.
Oil ministers from the 11-member Organization of Petroleum Exporting Countries are meeting in Vienna Sunday to consider higher production levels backed by Saudi Arabia but opposed by several other producers, including Iran.
President Clinton intervened Wednesday to urge Saudi Crown Prince Abdullah bin Abdulaziz to back higher OPEC production and remind OPEC that a global recession would hurt the oil-producing countries as badly as others.
The European Union also joined the call for higher production, calling on OPEC to push through a "substantial increase" in output and help drive down to prices to about $20 a barrel.
Analysts said EU's appeal, although over-optimistic, added further weight to the industrial countries' effort to persuade OPEC to raise production. EU Energy Commissioner Loyola de Palacio said she was worried by the "explosion" in oil prices that had caused inflation in the EU to rise by 1 percent and warned that higher oil prices threatened world economic growth.
OPEC member countries currently supply more than 40 percent of the world's oil and hold about 78 percent of the total proven crude oil reserves. As news of a possible increase reached markets, the price of the North Sea Brent crude fell back to $33.65 a barrel, almost a dollar lower than its high point earlier in the day.
In Wednesday trading in New York, crude oil futures hit $35.19 a barrel, a record since the 1990 Gulf War over Iraq's invasion of Kuwait, and a reflection of both seasonal panic and speculative buying. Traders' perception that any increase of less than a million barrels a day would not ease the pressure on prices also contributed to the record rise. The price rise caused sharp increases in petrol and diesel costs, provoking widespread unrest in France but hitting both industrial and countries hard across the board.
Industry analysts said that despite fears the oil price was out of control, several OPEC members remained opposed to a substantial increase in production, arguing it could cause the prices to collapse.
OPEC is benefiting from the price bonanza that began with its output squeeze last year but in 1998 it had to resort to severe belt-tightening as prices plummeted to $10 a barrel. Analysts have warned OPEC that failure to control the prices could rebound on it and set off a new cycle of very low prices.