Oil near record, Saudi hike not enough?
(Agencies)
Updated: 2004-05-25 07:51

U.S. oil prices rose to within a few cents of a new 21-year record on Monday as traders and analysts doubted whether Saudi Arabia's weekend pledge to raise output unilaterally was enough to meet demand.

U.S. light crude futures settled up $1.79 to $41.72 after climbing as high as $41.82 at midday, three cents from the contract's record reached last Monday. NYMEX crude oil futures began trading in 1983.

In London, internationally traded Brent crude was up $1.66 at $38.17 a barrel.

"There is skepticism as to if what the Saudis can do will be enough in the context of inventory demand," said Jan Stuart, Fimat USA analyst.

Saudi Arabia's Oil Minister Ali al-Naimi confirmed over the weekend that Riyadh was boosting output to 9.1 million barrels per day (bpd) to meet demand next month. That would lift Saudi production by 10 percent from an estimated 8.3 million bpd in April.

U.S. Energy Secretary Spencer Abraham said Naimi had told him Saudi Arabia would meet demand to a total of 9.1 million bpd in June and that it would meet requests up to their capacity of 10.5 million bpd going forward.

But traders said even the extra Saudi crude would not necessarily be enough to meet global demand, explaining why prices have again shot higher after news of its output hike.

"Saudis in last two weeks offered one proposal after another for increased quotas for OPEC and yet prices haven't fallen significantly and are up again this morning," said Nauman Barakat, senior vice president at Refco.

"Yesterday ... they suggested they would be willing to increase their own production to a level of 10.5 million barrels per day (bpd). These are signs of desperation."

Some analysts suggested speculative investors were holding onto massive long positions, bets that prices will keep on rising, based on such a perspective.

"It would be very technically supportive if we settled above $41. It would be a signal to funds that we're still in an uptrend and would encourage more buying," said Refco analyst Marshall Steeves.

Gains of about 25 percent this year have come from rising consumption fueled by economic growth, concerns over tight gasoline stocks in the United States and fears of Middle Eastern supply disruptions.

Saudi Arabia also proposed to raise OPEC group output limits by 2.0-2.5 million bpd, up 8 to 11 percent from existing quotas of 23.5 million. That's up from an initial plan for a 1.5 million bpd rise suggested by Riyadh two weeks ago.

Saudi Arabia has responded to calls from industrialized powers for producers to take action to prevent inflated energy costs from slowing economic growth. The Group of Seven top economic powers on Sunday in New York urged all producers to pump more crude.

The Organization of the Petroleum Exporting Countries held informal talks in Amsterdam on Saturday before a forum with consumer nations, including the United States.

The Saudi proposal has caused dissent among OPEC members, with some apparently angered by the unilateral move to raise production.

Cartel ministers made no recommendation on the proposal to raise group output limits. A decision is due at full OPEC talks on June 3 in Beirut.

Algeria said on Monday a quota hike would legitimize leakage over official curbs, not lower prices. Energy and Mining Minister Chakib Khelil said the market had already factored in about three million bpd of such leakage.

Close

Today's Top News     Top World News
Spokesman: Chen still a threat to Straits peace         Monopoly law badly needed, report says         Bush vows to demolish Abu Ghraib in Iraq plan         Forced labour case voided in Japan         Russia's richest man to be tried         Oil near record, Saudi hike not enough?	Israel army leaves Rafah after punishing raid       Bush outlines five steps to Iraqi sovereignty       New cracks at stricken Paris air terminal       WHO: Outbreak may be new Ebola strain       NASA: Astronauts must use Russian gear       Russia's richest man to be tried