Oil prices soar over doubts about OPEC strategy

The Associated Press

September 12, 2000

VIENNA, Austria -- Oil futures surged to a new 10-year high Monday amid widespread skepticism about OPEC's plan to reduce prices by pumping an additional 800,000 barrels of crude daily.

Within hours of OPEC's announcement that it would boost its output by 3 percent, the International Energy Agency warned the planned increase is unlikely to stabilize the volatile oil markets.

OPEC President Ali Rodriguez seemed to reinforce concerns by expressing doubt about whether the boost in output would make crude prices fall far enough. Meanwhile, Rilwanu Lukman, OPEC's secretary general, acknowledged that some members of the Organization of Petroleum Exporting Countries may not be able to produce at the higher levels.

As a result, prices that had dipped early in the day surged higher. October contracts of North Sea Brent crude climbed 84 cents higher at $33.62 a barrel on the International Petroleum Exchange in London.

Contracts for light, sweet crude surged $1.51 at $35.14 on the New York Mercantile Exchange after hitting $35.85 in intraday trading, its highest level since October 1990.

"Some of this is scary. I find it more or less inexplicable," said Peter Gignoux of the petroleum desk at Salomon Smith Barney in London. Gignoux said world crude supplies should be more than ample to meet current demand.

"I can't help but believe that when people settle down and do some proper economic analysis, it will supersede a knee-jerk reaction like the one we're seeing today."

OPEC's decision to increase output was a bow to international pressure, with Europe joining the United States in a call for more crude to help cool sizzling prices.

The new daily quota of 26.2 million barrels will take effect Oct. 1. Members agreed to meet again Nov. 12 to reassess conditions.

Lukman blamed high fuel taxes and speculation for much of the recent rise in fuel prices, saying that oil supplies are plentiful.

By upping production figures, OPEC wants to roll crude prices back to no more than $28 a barrel, yet Lukman acknowledged that the quote numbers are only objectives, not hard figures of minimum output.

Analysts believe that at least half of OPEC's members are already producing as much oil as they can. Only Saudi Arabia, OPEC's No. 1 producer, has much spare capacity.

http://starnews.com/business/articles/opec0912.html

-- Martin Thompson (mthom1927@aol.com), September 12, 2000