Oil off $1 as Opec considers scale of output hike

LONDON - Oil prices fell heavily yesterday as Opec's president said the group was considering a big output increase to make a "psychological impact".


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Published: Fri 28 May 2004, 11:49 AM

Last updated: Thu 2 Apr 2015, 12:31 AM

US Energy Secretary Spencer Abraham fuelled the sell-off when he said saw signs of extra supplies from Mexico, Nigeria and Russia, as well as Saudi Arabia.

US light crude CLc1 by 1430GMT was down 98 cents at $39.72 a barrel, extending profit-taking from last week's $41.85 peak, a 21-year high. London Brent LCOc1 shed 68 cents to $36.42 a barrel.

Opec President Purnomo Yusgiantoro said the group probably would have to raise supply allocations by more than 2.3 million barrels per day, 10 per cent, to have any hope of denting bulls' enthusiasm.

He acknowledged that, with estimates of Opec production already that much over official output limits, anything less than 2.3 million bpd would do little to reassure. Purnomo said the options being considered for a meeting of the Organisation of the Petroleum Exporting Countries on June 3 in Beirut were for increases of two million bpd, 2.3 million or more than 2.3 million.

"The third (option is) we have a significant increase so as to give a psychological impact to reducing oil prices," he said.

Leading Opec member Saudi Arabia has already made a commitment to deliver real extra volumes of about 10 per cent in June, taking its production to 9.1 million bpd, whatever Opec decides. It wants Opec to raise quota limits by 2.0-2.5 million bpd.

Speaking in Moscow, US Energy Secretary Abraham said the Saudi increase would have a "significant effect on oil prices".

"We also have positive signs from Mexico, Nigeria and Russia that production will rise to meet the global demand," Abraham told reporters. Worries about supply security in the Middle East were underlined by a statement purporting to come from an Al Qaeda leader in Saudi Arabia.

Analysts said demand strength could help keep the heat under oil prices for a while yet.

"This is not a re-evaluation of the data. The data yesterday was bullish full stop," said Paul Horsnell at Barclays Capital in London.

The US government's Energy Information Administration on Wednesday published weekly data showing that record-high retail prices have yet to cut demand for motor fuel.

Gasoline consumption in the year to date was up 2.9 per cent at 8.925 million barrels per day (bpd), leaving an inventory deficit of 2.4 per cent against last year, the EIA said.

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