The world's largest oil producers intervened yesterday to try to cool oil prices, as the Organization of Petroleum Exporting Countries (OPEC) reassured customers it could raise output and Saudi Arabia, its biggest member, turned on the taps at two new fields ahead of schedule.
Initially, the effort did little to reverse the recent sharp rise in oil prices, which set new records in both the US and European key benchmark crude futures yesterday. Prices declined only slightly in the immediate aftermath of the announcements from OPEC and Saudi Arabia, suggesting that the oil cartel's ability to influence oil markets has been undermined.
However by late last night in New York US prices had eased back a bit futher, with US crude prices in late trading almost $1.40 below highs reached earlier in the day.
Earlier Purnomo Yusgiantoro, the Indonesian holder of OPEC's rotating presidency, said the oil cartel had spare production capacity of between 1 million and 1.5 million barrels a day. Most of this idle capacity lies in Saudi Arabia, which announced it had started production at two new fields three months earlier than planned.
However, OPEC's spare capacity accounts for less than 2 per cent of current global production, and provides only a small cushion against possible supply disruptions due to terrorist activity in the Middle East, or from the Kremlin's battle with Yukos, Mikhail Khodorkovsky's Russian oil company.
Saudi Aramco, the kingdom's national oil company, said the new fields should eventually boost the country's output capacity by a further 800,000 barrels a day.
Saudi Arabian oil officials have previously said that much of their production from new fields was due to replace older wells, which were depleted, and the mothballing of other oil fields. However, they said the closure of the older fields may be delayed in light of strong demand for crude.
Concern about oil supplies keeping pace with global oil consumption, which is rising at its fastest pace in 24 years, pushed benchmark Brent crude futures to a record $40.99 a barrel yesterday, exceeding the previous peak of $40.95 reached in October 1990, in the lead up to the Gulf war.
US benchmark crude futures hit another record for the fourth consecutive day when the price went as high as $44.34 a barrel. However prices retreated after the latest US crude inventory report, which showed a drop in US oil imports.
Brent crude dropped 19 cents to $40.48 a barrel in late London trade, and US crude futures fell by more than $1 to below $43 in late trading in New York last night, falling towards the end of US trading and providing a modest boost to the US stockmarket.
"I think prices might be overdone, and we could see prices come back, but only by about $2 at the most," said Christopher Bellow, an oil trader at Pru-Bache in London.
Record prices over the past month and near-record imports of oil into the US are expected to result in another large import bill for the US, the world's largest oil consumer. Recent months have resulted in US crude import bills of more than $13 billion, a figure that energy analysts expect to be exceeded for July.- (Financial Times Service)
