- The Washington Times - Thursday, July 6, 2000

LONDON Members of the Organization of the Petroleum Exporting Countries (OPEC) are pressing Saudi Arabia to drop its plan to pump an additional 500,000 barrels of crude per day, but expectations that more oil will flow drove prices down yesterday.

Libya appeared to side with Iran, Iraq and other OPEC members in urging Saudi Arabia not to act alone, and the Saudis strove to find consensus on the issue.

However, industry analysts predicted that Saudi Arabia, the world's No. 1 oil producer, would move ahead with its plan to boost output if oil prices fail to drop sharply in coming days. The markets seemed to anticipate a production increase. In New York, crude prices fell 5.6 percent.

"I don't think they're backing off," Leo Drollas, chief economist of the Center for Global Energy Studies in London, said of the Saudis. "I think they'd be willing to put the oil on the market themselves."

The 10 other OPEC members reacted with anger and disbelief after Saudi Arabia said Monday it would add about 2 percent to the cartel's official output of 25.4 million barrels a day.

Except for Kuwait and the United Arab Emirates, no other OPEC members have enough surplus capacity to quickly raise their production levels.

Saudi Arabia's Ghawar field, the largest onshore field in the world, has remaining reserves of 70 billion barrels. The Saudi Safaniya field, the world's largest offshore field, has 19 billion barrels.

A potential major new oil supplier emerged yesterday when Kazakh President Nursultan Nazarbayev hailed what he called an enormous oil find in the Caspian Sea. He predicted it would put Kazakhstan among the world's five largest holders of energy resources.

The Kazakh state oil company, Kazakhoil, said the offshore Kashagan oil field held oil and gas reserves of more than 50 billion barrels. If correct, that would make it one of the largest oil fields ever discovered.

In a conciliatory gesture to OPEC yesterday, a Saudi official, speaking on the condition of anonymity, stressed that Saudi Arabia would make a decision after consulting with other OPEC members.

The consultations will begin in the next few days, said the official, who spoke from the Saudi capital Riyadh.

In London, the price for August contracts of North Sea Brent crude fell for the second straight day, slipping 36 cents a barrel from Tuesday's close of $29.22 on the International Petroleum Exchange. Brent closed Monday at $31.10, before the Saudis announced their planned increase.

Light, sweet crude futures fell $1.83 a barrel to $30.67 on the New York Mercantile Exchange, which had been closed since Friday for the Independence Day holiday weekend.

In addition, prices of U.S. gasoline contracts dropped 4.7 percent, heating oil contracts lost 4.3 percent and natural gas contracts tumbled 8.2 percent, although such changes generally take a few weeks to affect the retail market.

"It's a good day for the consumer," said Peter Gignoux, head of the petroleum desk at U.S. investment bank Salomon Smith Barney.

Gasoline prices have climbed to more than $2 a gallon in some parts of the United States.

The Saudis announced their intention to boost production after it became clear that an increase of 708,000 barrels per day agreed upon by OPEC oil ministers last month was not enough to drive down prices.

With the United States and other importers demanding relief, the Saudis want to open their taps further in hopes of trimming the price of the so-called OPEC basket of seven different crudes to a more sustainable $25 a barrel from $29.66 on Tuesday.

"The Saudis are prepared to risk a fair amount to help put the price of crude oil down risking the stability of prices [and] risking the OPEC consensus," Mr. Gignoux said.

OPEC, a fractious group whose members have widely varying interests, historically has tried to reach decisions by consensus.

A source close to the Libyan oil ministry said yesterday that OPEC members believe Saudi Arabia was unlikely to boost crude output without their approval.

The Iranian OPEC governor, Hossein Kazempour Ardebili, said his country and Saudi Arabia agreed any action on output should be unanimous. Speaking on Iranian radio, he suggested that a further increase in oil production was unnecessary.

OPEC President Ali Rodriguez, who also is Venezuela's oil minister, said yesterday that the group would not increase output at this time, and he insisted the Saudis would not do so on their own.

"Saudi Arabia respects and agrees that any output decision by OPEC should be by consensus," Mr. Rodriguez said.

Iraq's oil minister, Amer Mohammed Rashid, said earlier that the Saudi action was "totally unwarranted" and accused the country of yielding to U.S. pressure.

Mr. Drollas, the energy economist, noted that the same OPEC members opposed to the Saudi plan are those lacking the capacity to pump more crude, and he described the Saudi announcement as a clever way to test the market.

"By the end of next week," he said, "we should know what they have decided."

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