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Saudis Push OPEC Plan to Boost Oil Prices

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    Saudis Push OPEC Plan to Boost Oil Prices Simon Romero, The New York Times, March 31, 2004 http://nytimes.com/2004/03/31/business/worldbusiness/31oil.html
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      Saudis Push OPEC Plan to Boost Oil Prices

      Simon Romero, The New York Times, March 31, 2004

      http://nytimes.com/2004/03/31/business/worldbusiness/31oil.html

      VIENNA, March 30 - Saudi Arabia, the pivotal member of OPEC, signaled on
      Tuesday that it was pushing forward with a plan to lower the cartel's
      target for crude oil production by a million barrels a day, a move that
      would keep oil prices high.

      In practical terms, the development meant that despite the misgivings of
      some member nations, OPEC officials gathering for a meeting here on
      Wednesday are not likely to increase oil production to relieve prices,
      as desired by the United States, where energy costs have become a
      political issue.

      "Throwing more oil on the market would be destructive for everybody,"
      said Ali al-Naimi, the Saudi oil minister.

      Mr. Naimi brushed aside criticism that his nation was seeking higher
      financial returns from its oil exports. He said the recent run-up in
      prices had been caused by a spate of speculative activity in the
      commodity markets, not by inadequate supply.

      As if cued by Mr. Naimi's remarks, the price of light crude for delivery
      in a month's time climbed 80 cents, to $36.25 a barrel, in New York
      trading on Tuesday, approaching the 13-year high it reached earlier this
      month.

      Growing concern in Washington over rising prices seems to be having
      little effect on OPEC's decisions. The average retail price for gasoline
      rose on Tuesday to $1.753 a gallon, a record high, according to AAA,
      formerly the American Automobile Association; the average was $1.69 a
      gallon a month ago. Still, the United States is placing "very little"
      pressure on Saudi Arabia and other OPEC countries to keep production up,
      a senior official from an OPEC country said Tuesday.

      "The U.S. doesn't really get involved," the official asserted, noting
      that everyone remembered how little success the former energy secretary,
      Bill Richardson, had several years ago when he tried to use overt
      diplomatic pressure on the group.

      This official even asserted that OPEC had recently been leaning toward
      increasing production, but then put off the idea to avoid any appearance
      of doing Washington's bidding. "The administration knows this history,"
      this official said. "We are telling them, keep your mouth shut."

      The Bush administration is under increasing pressure to explain its
      approach to higher oil and gasoline costs. Twenty-five Democratic
      senators urged President Bush in a letter Tuesday to press OPEC to
      increase production. And at a campaign rally in San Diego, Senator John
      Kerry said the Bush administration had not done enough to hold down
      energy costs. "We should be putting pressure on OPEC to increase the
      supplies and not allow those countries to undermine the economies of the
      world," Senator Kerry said.

      Scott McClellan, the White House spokesman, dismissed the criticism. "We
      continue to engage in ongoing discussions with major producers around
      the world about the importance of letting the market determine the
      prices," Mr. McClellan told reporters while traveling with President
      Bush in Wisconsin.

      But he said the administration had ruled out a step urged by Senator
      Kerry and many members of both parties in Congress: temporarily
      suspending government purchases of oil for the Strategic Petroleum
      Reserve. Such a step "would have a negligible impact" on prices, he
      said.

      Other members of the administration have also been trying to explain
      their policy toward OPEC. Spencer Abraham, the energy secretary, told
      the Senate Armed Services Committee last week that while the
      administration was concerned about prices, "we've also made it clear
      that we're not going to beg for oil."

      But Andrew H. Card Jr., the president's chief of staff, appearing on
      MSNBC two days later, said that the United States was consulting with
      its "allies" in OPEC and asking for more production.

      A senior administration official said that "there has been a commonality
      of views across administrations on the issue of energy security" that
      includes informal, nonpublic discussions with OPEC oil ministers.

      "We have active informal contacts with oil ministers from most OPEC
      countries," the official said, and the message is "we want to see oil
      production levels that are consistent with the needs of a growing world
      economy" - a code phrase for more production.


      The Saudi oil minister, Mr. Naimi, said that the political pressures
      developing in the United States were understandable but misdirected.
      "People in power know that crude supplies have nothing to do with the
      current gasoline prices in the U.S.," Mr. Naimi said in Vienna. "A lot
      of things will be said in an election year."

      The 11 members of the Organization of Petroleum Exporting Countries now
      produce about one-third of the world's oil supply, or about 26 million
      barrels a day, almost 11 percent more than the group's official target
      of 23.5 million barrels a day for April.

      Pushed up in part by strong demand from China and the United States,
      prices for West Texas intermediate crude oil, the benchmark American
      grade, averaged $35.25 a barrel in the first quarter, the highest in 20
      years, according to Cambridge Energy Research Associates. Though
      American gasoline prices are rising for a number of reasons, including
      the switch to cleaner-burning blends and increases in demand, the price
      of crude is still considered the most important factor.

      There appears to be strong sentiment within OPEC to keep prices high.
      Several delegates here spoke in support of Saudi Arabia's stance,
      including those from Algeria, Libya and Venezuela. "I feel we should go
      with the cut," Fathi bin Shatwan, the Libyan oil minister, told
      reporters after arriving in Vienna. "Maybe there's a bit of oversupply,
      even."

      Some producers in the Persian Gulf, notably the United Arab Emirates and
      Kuwait, appeared hesitant about going ahead with the plan to lower
      production targets, which was adopted at a meeting in Algiers last
      month. But Saudi Arabia alone has the ability to increase or decrease
      output rapidly, so its views are expected to prevail. Helped by robust
      oil sales, the Saudi economy is growing at its fastest pace since the
      early 1980's.

      The alluring economic benefits of high prices are hard for producers to
      resist, and few analysts believe that any OPEC member other than,
      perhaps, Saudi Arabia will actually start producing much less oil, even
      if the organization decides to go ahead with the lowered targets. It
      would be almost impossible, for instance, for the group to reduce its
      production for April at this point, because member nations have already
      committed themselves to shipping oil to customers around the world next
      month.

      Data collected by analysts that track tanker movement also hold few
      signs that crude shipments will slow. Vela, the tanker arm of Saudi
      Arabia's national oil company, is believed to be sending more shipments
      to American ports in the Gulf of Mexico in April than in any month since
      last October, said Katherine Spector, an energy strategist at Deutsche
      Bank.

      "We might get cuts from a smaller OPEC member like the U.A.E, but more
      for reasons of maintenance than anything else," Ms. Spector said. "It's
      hard to see any significant cuts taking place."

      Two leading oil producers that are not part of OPEC - Russia and Mexico
      - have signaled their view that prices have risen too high and may start
      damping global economic activity. Russia, which is attending Wednesday's
      meeting as an observer, said it was issuing a formal warning on prices.

      "We cannot seek financial benefits at the expense of consumers, as it
      would spark inflation and destabilize the world's economy," Alexander
      Voronin, Russia's deputy energy minister, said in a statement.

      One of OPEC's normally quiet members, Iraq, is said to have suggested
      convening an emergency meeting of the organization next month to
      reassess prices and demand - another indication, analysts said, that
      OPEC is trying more actively than in the past to influence world oil
      prices.

      Still, Iraq is not expected to play a major role in OPEC decisions for
      some time, analysts said. The country now produces roughly 2.5 million
      to 2.6 million barrels of crude a day, compared with 3.5 million barrels
      a day in the 1980's, the last time it was affected by OPEC quota
      obligations.

      Jim Burkhard, director of oil market analysis at Cambridge Energy
      Research Associates, said it was unlikely that Iraq would become an
      important member of OPEC until it was able to increase production
      steadily without a threat of sabotage to its oil operations.

      --Steven R. Weisman, in Washington, and Richard W. Stevenson, in
      Wisconsin, contributed reporting for this article.

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