Cold comfort from Saudi oil minister

Opec members fear that slowing world economy could hit prices. Special report: the petrol crisis

Charlotte Denny Monday November 27, 2000

Saudi Arabia dashed hopes yesterday that oil exporting countries would pump more crude to ease sky high world energy prices as the northern winter begins to bite. The country's oil minister, Ali al-Naimi, said in an interview over the weekend that Opec, the oil producers' cartel, should wait before increasing production quotas, even though world oil prices remain stuck at $32-$33 a barrel, well over the cartel's $22-$28 target price.

In an excerpt from an interview with the Saudi-owned pan-Arab newspaper al-Hayat, Mr Naimi said that although oil prices were beyond the up per limit of the cartel's target, that "does not mean we will increase supplies, because the dangers for the instability of the market are big".

Western policymakers are worried that with oil reserves drying up and refineries running full tilt to meet demand, shortages this winter are likely to send prices for heating fuel rocketing, particularly in the US where most homes have oil-fired central heating.

The Saudi minister said the current level of oil prices did not reflect low supplies, however, but instead were the result of speculation and the inability of refineries to produce enough for the market.

The price of Opec's basket of seven crudes reached $31.63 per barrel on Thursday.

Under the Opec price stability mechanism, if the price stays above $28 for 20 working days or below $22 for 10 working days, crude production is adjusted by 500,000 barrels a day either way to stabilise prices.

The mechanism triggered a 500,000 barrels per day output rise last month after an unbroken 20-day cycle of basket prices of more than $28.

Mr Naimi said the Opec price mechanism "exists and will be used", but added that the cartel had the option "not to abide by it to the letter."

He said the latest rise in production by Opec of 500,000 barrels per day from October 1 had not fully reached the market, and the effects of the increase must be watched.

Pressure from the west has led to Opec raising its production quotas four times this year, adding a daily total of 3.7m barrels of extra oil to the market. Some cartel members fear that with the world economy expected to slow, cutting demand for oil, prices could tumble in the spring.

Saudi Arabia's stance on quota increases is key because it is the only Opec country with spare capacity. Mr Naimi has said that in an emergency his country could put an extra 1.8m barrels of oil a day on the market within 90 days

http://www.guardianunlimited.co.uk/business/story/0,3604,403258,00.html

-- Martin Thompson (mthom1927@aol.com), November 27, 2000