NEWS AND COMMENTARY
September 8, 2000
Crude Oil Falls From 10-Year High Amid OPEC Output Expectation
By Jon Hurdle, Bloomberg
OPEC Won't Ease Price Pressure At the Pump ... Weiss comments
LONDON - Crude oil fell more than 3% from a 10-year high amid speculation Saudi Arabia, the world's top oil producer, will persuade OPEC colleagues at a meeting Sunday to lift output enough to lower prices.
Saudi Arabia's oil minister, Ali al-Naimi, while arriving in Vienna today, said he wanted prices between $22 and $28 a barrel for the group's oil benchmark, rather than the almost $34 seen yesterday. While many analysts expect an increase of 500,000 to 800,000 barrels a day, too little to send prices into that range, oil is retreating after a three-week, 15% gain.
Nations in the Organization of Petroleum Exporting Countries want the governments of oil-importing countries to slash taxes to lower the burden of rising energy costs on consumers, al-Naimi said. In some European nations, taxes represent almost three-fourths of the cost of gasoline at the pump.
"OPEC will do its part to lower the crude price within the target band," he said. "We hope the consuming countries will do their part to lower the product price."
Winning support for a boost of more than 500,000 barrels a day -- or less than 1% of world output -- from other colleagues in the 11-nation group may be difficult.
The Kuwaiti oil minister, Sheikh Saud Nasser al-Sabah, today said that oil markets were adequately supplied and the nation would back a "marginal" change of about 500,000 barrels a day, the official KUNA news agency said.
Iran, OPEC's second-biggest oil producer, said it would support an increase in production although the country favored boosting output by less than 700,000 barrels, the Financial Times reported.
Oil ministers will debate a third increase in crude oil output quotas this year. The group will probably add 500,000 to 800,000 barrels daily, as much as 1% of world supply, according to 14 of 20 analysts surveyed by Bloomberg News.
An increase of that size may be insufficient to push prices into the group's target range, analysts said.
"OPEC would need to increase quotas by about 1 million barrels a day to get prices down to $28 or $29 a barrel," said Mohammed Abduljabbar, an oil analyst at the Washington-based Petroleum Finance Co. "But to get (oil-product) prices any lower, consuming states would have to cut fuel taxes."
OPEC's decision may be triggered by its price-band mechanism, an informal agreement to raise output by 500,000 barrels if the price of the group's oil benchmark exceeds $28 for 20 consecutive days. That mechanism may be triggered today.
Don't expect oil to fall much. If it does at all, it will spring back with a vengeance. Here's why: First, Saudi Arabia and Kuwait are the only two oil-producing countries that are not already at full capacity. Despite the fact that we saved the Kuwaitis' necks in the Gulf War, only Saudi Arabia really wants to help us out by boosting production. None of the other countries can add to supply much at all. Second, oil refineries in the U.S. are also working at full capacity. So, even if the crude oil makes it here, it will have to wait to be processed. Third, at best, OPEC will agree to a 700,000-barrel increase in production. Every analyst surveyed agrees that this is far from enough to make a dent in prices. Fourth and finally, as the winter months approach, the demand for heating oil will boost oil demand again, sending prices right back up.
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