Posted on 05/23/2004 7:22:51 PM PDT by blam
Relief as Saudi Arabia reduces oil pressure
Opec members are urged to follow breakaway move
Ashley Seager in New York
Monday May 24, 2004
The Guardian
The Group of Eight leading industrial countries reacted with relief yesterday to an announcement by Saudi Arabia that it would sharply raise oil production in an effort to put the lid on booming prices. G8 finance ministers had had oil at the top of their agenda after prices last week hit a record high of close to $42 a barrel, something that could threaten to strangle the world economic recovery.
"We very much welcome the decision by Saudi Arabia to increase production and we hope the rest of Opec will agree to raise their targets," said Gordon Brown at the meeting in New York.
The G8 issued a forcefully worded communiqué after their meeting, saying that high oil prices harmed the world economy and called on other Opec members to follow Saudi Arabia's lead and pump more oil to bring prices down to levels "consistent with economic growth and prosperity" around the world.
Some of the 11-member oil cartel had met informally in Amsterdam on Saturday to discuss raising oil production but stopped short of doing so because a formal meeting in Beirut on June 3 is approaching. Instead they expressed "deep concern" about prices.
But, in a sign of disunity within Opec, Saudi Arabia, the biggest oil exporter in the world, broke ranks and announced that it would raise production immediately from 8.3m barrels a day to 9m and shortly to 10.5m barrels.
It produces more than 10% of the world's daily consumption of 80m barrels and has long acted as Opec's "swing" producer, able to lower and raise production in response to rapid movement in oil prices.
Mr Brown spoke to the Saudis and Opec president Purnomo Yusgiantoro late last week to stress that while factors such as surging demand for oil in America and China were also pushing prices up, Opec had a duty to pump more.
"Supply is clearly less than demand at the moment and something needs to be done. Opec has accepted that the sustainable price for oil is between $22 and $28 a barrel," said Mr Brown, adding he was sure the group would agree to raise its quotas by more than 2m barrels a day at its June meeting.
Opec is pumping about 25.5m barrels a day, nearly 2m over its quotas, in response to the surge in demand. The Saudi proposal would push production towards 27m barrels. The Saudi announcement was not welcomed by some other Opec members.
"They can't. It's a mistake. Saudi Arabia can't decide alone to increase production," said Libyan oil minister Fethi bin Chetwane.
The Saudi announcement is likely to push oil prices down again when markets reopen today. European economic affairs commissioner Joaquín Almunia said: "We hope [the Saudi plan] will contribute to calm markets."
Mr Brown would not be drawn on how far he thought prices would fall. Prices had already weakened late on Friday when Saudi oil minister Ali al-Naimi said he would be proposing in Amsterdam that quotas be increased. Mr Brown would also not comment on whether he still planned to go ahead in September with a rise in fuel duty announced in his March Budget.
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children.org Pump prices of more than 80p a litre are not far from the level which prompted the fuel protests four years ago and Mr Brown would probably be unwilling to risk a repeat of the stoppages.
The Treasury is also benefiting from the higher oil price to the tune of hundreds of millions of pounds, because of its taxes on North Sea oil production.
Scrapping the fuel duty rise would cost it about £300m. It is not clear whether extra oil from Saudi Arabia will be enough to take the heat out of oil prices. The US summer driving season is just getting under way and demand for petrol will remain high for months to come.
Attacks on oil installations in Iraq and Saudi Arabia in recent weeks have raised anxieties over Middle Eastern oil supplies in general so prices are likely to remain volatile.
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