Saudi Sees More OPEC Supply if Price High By Karen Matusic and Michael Georgy DUBAI, May 21  OPEC giant Saudi Arabia expects the producers' group to release more supply to the market automatically if the 20-day average for the basket of OPEC crude rises above $28, a Gulf source said on Sunday. The source told Reuters that OPEC President Ali Rodriguez of Venezuela would probably instruct the producers' group to boost output by a collective 500,000 barrels per day (bpd) under an agreement reached in March if the price rose that far.

"It is expected that if the (average) price (stays out of the range) then the president will instruct us to implement the (automatic production mechanism)," said the source familiar with policy in Saudi Arabia, the world's biggest producer and OPEC's most influential member.

The price of OPEC's reference basket rose to $28.48 a barrel last week. If prices stay at this level or above, the 20-day average will move out of the range shortly before OPEC meets on June 21 in Vienna to review output policy.

OPEC ministers have said they would raise or cut production if the 20-day average for OPEC's basket of seven crudes strays outside a $22-$28 band.

The decision underscored OPEC's bid to tighten its grip on the volatile world oil market.

Resurgent world oil prices shed some of their recent strength on Friday as moves to counter possible U.S. gasoline shortages dampened speculative buying. London July futures for Brent crude settled nearly one percent lower at $28.65.

Major oil producers such as Saudi Arabia and Iran have said they do not expect the Organisation of the Petroleum Exporting Countries (OPEC) to decide to unleash new supplies at that ministerial meeting if the prices are within the range.

The Gulf source familiar with Saudi Arabia's oil policy said the current high oil price was driven by a shortage of gasoline in the United States and not by tight crude supplies.

Saudi Sees Gasoline Behind Oil Price

"Right now the high price is because of a shortage in reformulated gasoline (RFG) and some speculation. There is not a crude shortage. In fact, a stock build is taking place and will continue to take place in the third quarter," he said.

"There may be a shortage of gasoline (in the United States) unless they continue to relax the specifications which in turn could drive up crude (prices)," the source added.

Strict environmental specifications on gasoline, called RFG summer Phase 2, recently hit one-third of the United States' pumps in cities and regions where smog is a problem.

U.S. refiners had trouble producing the cleaner-burning product due to stringent sulphur requirements and fears over patent infringements on formulas owned by Unocal Corp.

The United States, the world's biggest oil consumer, has expressed new concern over lofty oil prices.

But U.S. Energy Secretary Bill Richardson said he is keeping a low profile, a sharp contrast to his aggressive oil diplomacy which pushed OPEC to raise output at its last meeting in March.

http://www.foxnews.com/world/052100/saudi_oil.sml

-- Martin Thompson (mthom1927@aol.com), May 21, 2000