OPEC To Boost Oil Production a Bit
Thursday, June 22nd 2000, 12:00 am
By: News On 6
VIENNA, Austria (AP) â€” By raising its official production ceiling by 3 percent, OPEC hopes to avoid a confrontation over high oil prices with the United States while ensuring that it doesn't stifle long-term demand for crude.
OPEC members agreed Wednesday to boost output by 708,000 barrels a day. It was the second time in three months that the Organization of Petroleum Exporting Countries voted to raise its quota in an effort to stabilize prices.
However, industry analysts said the decision would do almost nothing to help U.S. drivers, who now face record-high prices at the pump.
``Throwing crude oil at the gasoline problem in the U.S. is not going to solve it. Refineries are already producing as fast as they can to meet existing demand,'' said Leo Drollas, chief economist for the London-based Center for Global Energy Studies.
OPEC ministers approved the increase as pressure built in the United States for relief from sharply higher gasoline prices. The national average price of regular unleaded gas was $1.681 this week, up 5 cents from the previous week, according to the U.S. Department of Energy. This has been the fourth straight week of record highs.
OPEC blamed much of the recent spike in gas prices on unique market conditions that are unrelated to its own activities â€” a claim partially supported by some analysts.
The producers' cartel argued, for example, that taxes accounted for some 70 percent of the gas price in Europe and that federal regulations calling for cleaner-burning fuel have contributed to higher gas prices in the United States.
``People in consuming countries point their finger at OPEC,'' the group said after 10 of its members agreed on the higher level of production.
``This is quite wrong. These people should tackle their own governments about excessive petrol prices.''
OPEC's decision came after an unusually brief meeting Wednesday evening in Vienna. The group will begin pumping more oil July 1, OPEC Secretary General Rilwanu Lukman told reporters.
Oil prices rose on world markets, and analysts said they expected that the increased production limits would have little substantial impact on U.S. gasoline prices through the summer months.
The main U.S. crude oil, West Texas Intermediate, rose 72 cents Wednesday on the New York Mercantile Exchange, where contracts for August delivery closed at $31.37 a barrel. On Tuesday, when the July contract expired, the price for oil for short-term delivery closed at a 3 1/2 -month high of $33.05 a barrel.
Lukman acknowledged that some of OPEC's members are exceeding their current output quotas and said the new agreement would actually put about 600,000 fresh barrels of OPEC crude on world markets each day.
Several analysts said that OPEC's increase in output would probably cap current high prices for crude even if it does little to ease prices for gasoline.
``It's not a heck of a lot more oil,'' said Phil Flynn, senior energy analyst for Alaron Trading Corp. in Chicago. ``I don't think this is going to solve our problem on the gasoline front.''
Hopes for even greater OPEC production were tempered by the group's limited ability to pump more. Only Saudi Arabia, Kuwait and the United Arab Emirates have enough spare capacity to pump large amounts of new oil, Drollas said.
Under pressure from the United States, nine OPEC members agreed in March to raise output in a successful effort to trim crude prices, which had almost tripled over the previous year.
Iraq never was part of the production cuts last year that sent prices surging. Iran participated unofficially in that increase although it refused to sign the formal agreement out of anger at what it saw as heavy-handed U.S. intervention.
Iran will participate in the latest agreement, although Iraq will not.
OPEC's official quota, not including Iraq, is now 24.7 million barrels a day. It will increase in July to 25.4 million barrels.
OPEC pumps about 35 percent of the world's oil.
Mexico, not a member of OPEC, said Wednesday it will boost its crude oil exports by July 1 to coincide with OPEC's increase.
The Mexican Energy Ministry said in a statement that the decision to increase output by 75,000 barrels a day, or about 4 percent, ``secures Mexico's market share for its crude exports.''
Along with Venezuela and Saudi Arabia, Mexico led moves to curb oil production in 1998 and 1999 that led crude oil prices to recover last year.