Tuesday, 4 July, 2000, 20:38 GMT 21:38 UK Opec rift over Saudi plan

Oil prices have been continuing to spiral upwards

Saudi Arabia's announcement that it is considering increasing output by half a million barrels a day has kicked up a storm among fellow Opec members.

The unexpected step by the world's biggest oil exporter brought London prices for Brent crude down by $1.5 a barrel to just under $30 on Tuesday, and has been welcomed by the United States.

But Opec members appear to have been angered that Saudi Arabia did not consult them.

"Before Saudi Arabia takes any decision, it is essential to hold consultations. Until now we have always taken decisions by consensus," Opec President Ali Rodriguez said.

His criticism was echoed by ministers from Kuwait and Venezuela.

There is pressure for us to increase production so that prices fall. No, we are not going to do that Venezuelan President Hugo Chavez Iraq's oil minister, General Mohammad Rashid, accused the Saudis of yielding to US pressure and neglecting the interests of their own people and Opec.

And Iran, the organisation's second largest producer, dismissed the Saudi plan as "news hype", saying the kingdom had no reason to act unilaterally.

The furore prompted Opec Secretary-General Rilwanu Lukman to contact fellow Opec members, saying there would be no increase in production without their agreement.

Saudi Oil Minister Ali al-Naimi is reported to have been busy on the phone, reassuring Opec partners that the kingdom would not act unilaterally.

Saudi fears

Saudi officials fear customers could switch to other fuels unless they act to bring the price of oil down.

"If the price does not decrease, Saudi Arabia, in consultation with other producers, will increase production by 500,000 barrels per day, within the next few days," Mr al-Naimi told the official Saudi news agency SPA on Monday.

News of the move rocked the oil market, where prices had been continuing on an upward trend despite earlier output increases by Opec.

Eighteen months ago, a barrel of Brent Crude oil was trading for as little as $10.

Saudi Arabia has a target of $25 a barrel in mind for the Opec benchmark - roughly equivalent to $26 for Brent - and Tuesday's prices are still well above that figure.

Rising price of oil

Last month, Opec members agreed to increase oil production by 708,000 barrels a day, in the hope of bringing the price down.

But that move had little impact on the oil price, which stayed above $30 a barrel.

Saudi Arabia is one of the few Opec countries that could actually sell more oil, but it could be several months before it is able to bring excess capacity to the market.

Kuwait says it, too, has some spare capacity, while the Saudis have reportedly approached Mexico, a non-Opec member, to see if it could boost its output.

Move welcomed

US Vice-President Al Gore welcomed Saudi Arabia's plan, saying he hoped it would drive down fuel prices in the United States.

UK campaigners are planning a petrol boycott Mr Gore said he hoped the increased output would result in cheaper pump prices and called on fuel companies to pass on any cuts in the price of oil.

In the UK, where fuel taxes make up a far greater percentage of the total price of a litre of fuel, the government has come under pressure to reduce taxes and therefore prices.

Campaigners are planning a nationwide petrol boycott of garages - "Dump the Pump" - on 1 August.

Motorists have been asked not to buy petrol or diesel on that day.

Ray Holloway, director of the Petrol Retailers' Association, said the Saudis' decision was "excellent news".

He said: "Hopefully this will help steady the oil market and take the pressure off what was looking like an upward trend in prices."

http://news.bbc.co.uk/hi/english/business/newsid_819000/819595.stm

-- Martin Thompson (mthom1927@aol.com), July 04, 2000

Answers

I thought that Saudi announcement would stir up dssent among OPEC members.

-- Uncle Fred (dogboy45@bigfoot.com), July 05, 2000.