- The Washington Times - Tuesday, July 4, 2000

From combined dispatches

ASWAN, Egypt Saudi Arabia intends to immediately increase the country's oil production by 500,000 barrels a day in an effort to reduce crude prices from their current $30-a-barrel level, industry and government sources said yesterday.

An official from an OPEC delegation, who spoke on the condition of anonymity, said the Saudis were acting because they were the only producers with enough reserves to increase production.

He also said the Saudis would move to decrease production if prices fell below $25.

In Washington, a Saudi government official confirmed the country's intention to sell additional oil until prices fall. Speaking on the condition of anonymity, the official said the government in Riyadh was expected to make an announcement.

"I'm very pleased at the reports that Saudi Arabia is proposing to increase production by a considerable amount," Vice President Al Gore said while campaigning. "I want to call on the big oil companies to let that pass through in the form of price reductions to the people who are filling up at the gasoline filling stations. What we need is not a trickle of relief, we need significant reduction."

Gas prices dropped an average of 2.3 cents a gallon last week, according to Energy Department data released yesterday. Unleaded gas fell to an average of $1.63 cents a gallon.

Both Mr. Gore and presumed Republican presidential candidate George W. Bush have reacted coolly to the idea of suspending the federal gasoline tax to ease high gasoline prices.

Some states, however, have been responding to angry motorists by rolling back gas taxes. Iowa Gov. Tom Vilsack yesterday suggested mailing $10 coupons to state residents who purchase ethanol-blended gasoline.

It was not clear what effect the Saudis' move would have on gas prices, which are above $2 a gallon in some parts of the United States.

"I would expect gasoline prices to fall with crude oil prices, especially as we get close to Labor Day," said Chris Stavros, an energy analyst for Paine Webber in New York. "Gasoline's very much the in-season product, so if demand remains pretty good for gasoline around the country, that could help support prices" for much of the summer."

Analysts were skeptical that Saudi Arabia would make such a move, which comes only weeks after the Organization of the Petroleum Exporting Countries decided to increase exports by an additional 708,000 barrels a day.

"It sounds too desperate for the Saudis. They wouldn't want to be seen to act … without some of the others coming along with them," said Leo Drollas, chief economist of the London-based Center for Global Energy Studies.

Saudi Arabia, the world's largest oil producer and exporter, reportedly had been trying to persuade other producers to raise exports above the increase agreed to at an OPEC meeting last month in Vienna, Austria.

Despite the increase, oil prices have not gone down.

Saudi Oil Minister Ali Naimi told his country's official news agency, in comments published yesterday that the Saudis were seeking "in any way we can to bring the prices down from their current level to the target level of $25 per barrel… . If the price does not decrease, Saudi Arabia, in consultation with other producers, will increase output by 500,000 barrels a day within the next few days."

Saudi Arabia has excess production capacity of 2.3 million barrels per day that can be put on the market in a short period of time if necessary, another OPEC official had said on the condition of anonymity earlier this week. As of July the kingdom's quota is 8.25 million barrels per day.

Kuwait and the United Arab Emirates are the only other OPEC members with enough capacity to quickly produce and export significant additional amounts of crude.

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