- The Washington Times - Tuesday, September 12, 2000

VIENNA, Austria Oil futures surged to a new 10-year high yesterday amid widespread skepticism about OPEC's plan to reduce prices by pumping an additional 800,000 barrels of crude daily.

Within hours of OPEC's announcement yesterday that it would boost its official output by 3 percent, the International Energy Agency warned the planned increase is unlikely to stabilize the volatile oil markets.

OPEC President Ali Rodriguez seemed to reinforce concerns by expressing doubt about whether the boost in output would make crude prices fall far enough.

In Washington, lawmakers announced a new round of hearings next week on the matter of rising energy costs and what to do about it.

The House Government Reform Committee, chaired by Rep. Dan Burton, Indiana Republican, summoned administration officials yesterday to tell Congress what it plans to do to curb soaring energy costs. Energy Secretary Bill Richardson, Federal Energy Regulatory Commission Chairman James Hoecker and some business owners will testify at a hearing on Sept. 21.

Mr. Burton said the hearing would look at rising oil, gasoline, home-heating oil, natural gas and electricity prices.

Meanwhile, Rilwanu Lukman, OPEC's secretary general, acknowledged that some members of the Organization of Petroleum Exporting Countries may not be able to produce at their higher, targeted levels.

As a result, prices that had dipped early in the day surged higher. October contracts of North Sea Brent crude climbed 84 cents to $33.62 a barrel on the International Petroleum Exchange in London, while contracts of light, sweet crude surged $1.51 to $35.14 on the New York Mercantile Exchange after hitting $35.85 in intraday trading, its highest level since October 1990.

"Some of this is scary … I find it more or less inexplicable," said Peter Gignoux, head of the petroleum desk at Salomon Smith Barney in London.

Mr. Gignoux said world crude supplies should be more than ample to meet current demand.

"I can't help but believe that when people settle down and do some proper economic analysis, it will supersede a knee-jerk reaction like the one we're seeing today," he added.

OPEC's decision to increase output was a bow to international pressure, with European countries joining the United States in a call for more crude to help cool sizzling prices.

The group's new daily quota of 26.2 million barrels will take effect Oct. 1, and OPEC members agreed to meet again Nov. 12 to reassess market conditions.

Mr. Lukman blamed high fuel taxes and speculation for much of the recent rise in fuel prices, noting that oil supplies are plentiful.

By upping production figures, OPEC wants to roll crude prices back to no more than $28 a barrel, yet Mr. Lukman acknowledged that the quote numbers are only objectives, not hard figures of minimum output.

"These new production levels are what countries are entitled to produce under the new arrangement, and we have to give them a chance to produce it. Some may be a little hard up to meet these commitments," he told a news conference.

Analysts believe that at least half of OPEC's members already are producing as much oil as possible. Only Saudi Arabia, OPEC's No. 1 producer, has much spare capacity.

Asked if the Saudis would step in to meet a shortfall in targeted production, Mr. Lukman said, "We'll cross that bridge when we come to it."

Jareer Elass, a Washington-based energy consultant, called the new production figures "bogus quotas." Even if OPEC could muster an additional 800,000 barrels a day, it would achieve little more than capping prices close to current levels, he said.

The head of the IEA, Robert Priddle, said that OPEC's output decision was unlikely to stabilize prices or supplies because it left too many unanswered questions, such as the actual number of fresh barrels to be pumped.

"The producers say they have set themselves the objective of achieving stability through unilateral market management. So far, they have achieved just the reverse," Mr. Priddle said in a statement.

The Paris-based IEA is part of the Organization for Economic Cooperation and Development, a group of the world's wealthiest countries.

Analysts warned that the bulk of OPEC's planned increase, roughly in line with what many had predicted, will serve only to legitimize the 700,000 barrels that OPEC members are already estimated to be producing each day above their current quotas.

As a result, analysts expect the OPEC agreement's impact on prices to be meager particularly for Americans who depend on heating oil for their homes.

"It's possible oil prices won't fall as much as they should," Mr. Rodriguez told a Venezuelan radio station in Caracas.

One more variable in the complex process of matching supply and demand for oil is the possibility that the United States and other wealthy countries might dip into their strategic oil reserves in a bid to dampen domestic fuel prices. Pressure to do so will likely intensify with the November presidential and congressional elections approaching.

"It would be a misuse of the [U.S.] strategic reserve to put it into the market when we are in a position to do it for them," Mr. Lukman said.

The new agreement does not include Iraq, which exports its oil under a method monitored by the United Nations.

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