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The Guardian Online - Wednesday, November 22, 2000 Winter: OPEC stand drives up oil prices

ROBUST oil prices continued to track upwards Monday extending pre-weekend gains driven by fears of shortfalls in home heating oil supplies in the West this winter.

Weekend talks between major oil producers and consumers in the Saudi capital Riyadh failed to elicit any promises of extra barrels from suppliers despite pleas from consuming nations for an increase in crude flows to ease the burden of high fuel costs.

U.S. Benchmark crude futures advanced 29 cents to $35.32 a barrel, which is only around $2.50 short of the 10-year high at $37.40 set in mid-September.

Brokers said the last surge upwards was largely driven by heating oil and natural gas. U.S. heating oil futures charged more than two cents higher in early light dealings to 110.20 cents a gallon.

Oil prices have stubbornly held well above $30 a barrel in the last few months partly as fuel stockpiles in the United States, the world's biggest energy guzzler, have dwindled to near 24-year lows, prompting concerns of shortages if this winter should prove severe.

U.S. Energy Secretary Bill Richardson said last Saturday in Riyadh he was feeling more comfortable with U.S. heating stocks in the northeast of the country, the nation's largest consuming area of the fuel.

U.S. heating oil inventories have been running at more than 30 per cent below year-ago levels. "Home heating oil stocks on the east coast especially have been strengthened and repleted," Richardson told reporters at the Riyadh forum. "We are not out of the woods yet there (but) we feel more comfortable that there will not be a supply disruption in the east coast," he said.

But Richardson, who has used aggressive diplomacy in the past to secure OPEC output hikes, failed to win assurances from close ally and the world's biggest crude exporter, Saudi Arabia, that the kingdom would jack up production early next year if prices remain sky-high.

The Organisation of Petroleum Exporting Countries (OPEC) is due to hold a production policy-setting meeting on January 17 to review market conditions.

The producers' organisation, which controls two-thirds of global oil exports decided earlier this month to hold output at current levels. The group has raised production four times this year by a total 3.7 million barrels per day (BPD) to try and stem oil's relentless rally, which has notched up the highest prices in a decade. The last hike injected 500,000 bpd to group output from October 31.

OPEC believes factors other than fundamentals, such as Middle East tensions, bottlenecks at U.S. refineries and in transport systems and financial speculation have been keeping crude at high levels.

The 11-member organisaiton wants to avoid prices crashing when the peak-demand northern hemisphere winter ends early next year and stocks are back to more normal levels. OPEC President Ali Rodriguez on Sunday rejected the U.S. call for more crude, saying that global oil investories were rising and that the world's 76 million bpd market was already oversupplied by a 1.4 million bpd, market was already oversupplied by 1.4 million bpd, or two per cent. Inventories of crude and refined products such as gasoline were now equivalent to 80 days of demand, which Rodriguez said was an equilibrium level.

"According to our projections, stocks could reach 90 days (of demand) and when this happens we expect prices to fall," Rodriguez told Reuters in an interview. OPEC kingpin, Saudi Arabia, also said that consuming nations would have to wait. "It is only reasonable to await the impact of at least the least two increments," Saudi Oil Minister Ali Al-Naimi said of previous OPEC supply increases

-- Martin Thompson (, November 22, 2000

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