Oil skids into confusion Uncertainty over OPEC production leaves markets in disarray July 18, 2000: 9:58 a.m. ET

LONDON (Reuters) - World oil markets were thrown into fresh confusion on Tuesday after OPEC headquarters said prices had fallen below $28, the mark above which the cartel has said it would increase crude oil production.

OPEC's Vienna secretariat said the price for a basket of its crudes fell to $27.46 a barrel on Monday. OPEC assesses world oil markets with reference to its own composite oil price, reflecting prices for several blends in different regions.

Dealers said the drop in the reference price appeared to nullify Monday's call from cartel president Ali Rodriguez of Venezuela notifying member states to prepare to raise supply by 500,000 barrels a day.

Traders now want to know whether the Organization of Petroleum Exporting Countries will postpone plans to raise output, or stick to its promise and release more barrels to ease prices down toward the group's target of $25.

"We are fed up with it. It just adds to the confusion," said Tony Machacek, of oil brokerage Prudential Bache. "The market held the belief that OPEC would at some stage release 500,000 barrels a day. Now this just clouds the issue. We will just wait on the sidelines."

London Brent crude futures rose 21 cents to $28.77 and U.S. light crude was up 10 cents at $30.97.

Under the rules of an informal OPEC agreement adopted in June, the price of a basket of its crudes has to stay above $28 for 20 consecutive days for more oil to be released.

Iranian Oil Minister Bijan Zanganeh said on Tuesday that his country would insist on sticking to the rules for the cartel to implement the incremental production. Zanganeh told Iranian state radio that there would be no increase even if prices were to fall to $28 or lower for just one day.

Iran has been opposed to an output increase, unless it comes under the strict terms of the price-trigger mechanism.

"We are all waiting to see if any other comments will come out to see if everyone else agrees with the Iranians," said a London trader.

Saudis stay silent

Saudi Arabia, having said two weeks ago it planned an imminent increase in output by 500,000 barrels a day, has remained silent in recent days.

The kingdom, OPEC's biggest producer, has made clear it wants prices to fall to $25 a barrel, and industry insiders say it is already is being boosting output.

The influential Saudis previously had brushed aside the price band scheme, saying OPEC should not be controlled by a mechanism, but that production decisions should be made by consultation.

OPEC may have the chance to sort out the mess when the group's Secretary-General Rilwanu Lukman visits Venezuela on Tuesday to discuss a September summit for cartel heads of state. Lukman is due to meet Venezuelan Oil Minister Ali Rodriguez, the OPEC president, on Wednesday.

Traders said there was a general feeling that OPEC would act on its vow to cool prices but the market needed firm details on its plan of action.

Copyright 2000 Reuters

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-- Martin Thompson (mthom1927@aol.com), July 18, 2000