No significant decline seen in oil prices foreseen despite hints of higher output
LONDON (AP) – Three major petroleum-exporting countries recommended a boost in crude oil production Thursday to ease a world shortage and trim the high prices consumers pay for home heating oil and gasoline.
But the oil ministers from Saudi Arabia, Venezuela and Mexico wouldn’t specify the amount or timing and oil industry analysts said this lack of specifics means prices aren’t likely to ease significantly any time soon.
”This market needs to see real barrels, not promises. That’s what’s going to bring prices down,” said Peter Gignoux of Salomon Smith Barney in London.
A final decision will likely come at a long-anticipated meeting of the Organization of Petroleum Exporting Countries in Vienna on March 27.
”Uppermost in our minds is to maintain stability in the markets,” Saudi Oil Minister Ali Naimi told a news conference Thursday. ”We recognize that there is a need for additional production. The issue is when and how much.”
Saudi Arabia is the world’s No. 1 oil exporter, and Venezuela has the third-largest output in OPEC. Mexico is a major non-OPEC producer.
”We are convinced that we have to increase production this year,” said Venezuelan Oil Minister Ali Rodriguez.
Oil exporters inside and outside of OPEC cut production in 1998 and 1999 to boost historically low prices.
As a result, crude has soared from $10.72 a barrel on Dec. 10, 1998, to a nine-year high on Wednesday of $31.77 in trading on the New York Mercantile Exchange.
Heating oil prices have doubled in some areas of the northeastern United States this winter, and U.S. gasoline prices have neared an average of $1.50 a gallon, an all-time high. At that rate, it will cost about $960 more to fuel a popular, but gas-guzzling Chevy Suburban this year than it did in 1999.
The increases could eventually endanger economic growth in oil importing countries.
In recent weeks, exporters have come under intense pressure from the United States and other importers to pump more crude so as to bring prices down.
One congressman introduced legislation Wednesday that would bar military assistance to any oil-exporting nation involved in price manipulation.
However, Thursday’s announcement from the oil exporters did little to inspire confidence on the oil markets. Futures prices for light, sweet crude for delivery in April initially rose an additional 23 cents a barrel to $32 in New York, then eased off slightly to close at $31.69.
Many analysts believe that OPEC, together with key non-OPEC members, will decide to increase production at its March meeting.
However, analysts said the ministers’ refusal to give further details about the expected increase sends confusing signals to oil markets.
Leo Drollas, chief economist of the Center for Global Energy Studies in London, predicted that contracts for future delivery of oil would start to fall in value, as traders anticipate an increase in output in coming months.
”But the physical market, where you’re dealing with fundamentals, won’t change as much,” he said. ”It will only change when you’ve got more oil, which will take time,” he said.
Because the bulk of U.S. oil imports takes 40 days to arrive from the Gulf, Drollas said consumers probably wouldn’t benefit from lower crude prices until mid-May at the earliest.
Gareth Lewis-Davies, a Lehman Brothers analyst, said OPEC would need to raise production by about 9 percent – or 2.5 million barrels per day – to bring crude prices down to a more sustainable level of $20-22 per barrel.
Adding further uncertainty is the fact that OPEC still remains divided over what to do. Moderates such as Saudi Arabia and Venezuela favor lower prices, while Kuwait, Iran and other hawks are happy with prices at current levels and have resisted calls for higher production.
Politics further muddies the outlook. Even the Saudis, who depend on the United States for political and military support, may be loath to appear too eager to comply with U.S. demands for increased production.
”They don’t want to be seen to be kowtowing to the U.S.,” Drollas said. ”They have their pride.”
Aside from OPEC, seasonal factors could bring some temporarily relief to motorists. Spring is traditionally a time of lower demand because the heating season is over and summer driving season hasn’t yet started.
This pattern alone suggests that oil prices could decline by 10 percent or more in the spring, analysts said.