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
"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
"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 gone from $10.72 a barrel on Dec. 10,
1998, to a 9-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
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
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 rose as high as $32.15 in
New York, then eased off somewhat 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
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
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
"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
This pattern alone suggests that oil prices could decline by 10
percent or more in the spring, analysts said.