Crude oil fell below $30 in London yesterday after the world's largest oil exporter Saudi Arabia's announcement on Monday that it would increase its production by 500,000 barrels a day if prices did not drop to the at its June 21st extraordinary conference.
In afternoon trading, the price of benchmark Brent for August delivery fell to $29.65 a barrel, $1.45 lower than at Monday's close.
According to the Saudi Oil Minister, Mr Ali al-Naimi, the increase in production, which will be agreed with other OPEC producers, could be made within days. Saudi Arabia is the only producing country, inside or outside OPEC, with substantial excess capacity. All other producers combined can contribute only one million additional barrels a day.
According to an oil industry analyst, the Saudi move - which took some OPEC members by surprise - was "primarily intended to boost the prospects" of the US Vice-President, Mr Al Gore, in the presidential race. The Clinton Administration, the source stated, has refused to reduce taxes on petrol or take other measures which would bring down the price.
In his view, the Saudi boost in production might mollify US consumers, angered over the soaring price of petrol at the pump, but will not promptly bring down prices, particularly in the US.
The source contended that Saudi Arabia and its OPEC partners are genuinely motivated by a desire to stabilise the price of oil at an affordable level. This is why they recently raised the level of production by 708,000 barrels a day. He said they agreed the current high price was "not an advantage because it harms consumers, particularly those in the Third World" who can least afford heavy expenditure on fuel, and drives inflation in the developed world.
The Nicosia-based authoritative oil journal, Middle East Economic Survey, in its July 3rd issue, explained why the production rise cannot resolve the price problem. The oil market is tight only with respect to light sweet crude, which is in short supply, particularly since the recent explosion and fire at the Mina al-Ahmadi refinery in Kuwait reduced the flow of this high grade crude by half a million barrels a day. The main reasons for the tight market for light, sweet crude is the growth of the world economy and the fact that consumers refuse to assume their share of responsibility for the situation.
