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Oil prices ignore OPEC
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June 22, 2000: 1:53 p.m. ET
Crude prices boom despite oil cartel's agreement to boost oil production
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NEW YORK (CNNfn) - A decision by OPEC to open its taps and let more oil into the market failed to make a dent in crude oil prices Thursday.
Light crude futures for August delivery jumped 81 cents on the New York Mercantile Exchange to close Thursday at $32.18, and Benchmark Brent crude oil futures for August delivery rose 82 cents on the International Petroleum Exchange in London to close at $30.15.
The Organization of Petroleum Exporting Countries agreed Wednesday to raise its output by 700,000 barrels per day, or about 3 percent, in an attempt to choke off crude prices that have risen recently to more than $30. The increase was not as high as some customers, notably the United States, had demanded.
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CNNfn's Tom Bogdanowicz reports on little change in oil prices despite OPEC's decision to increase production.
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Bruce Lanni, an analyst with CIBC World Markets, said OPEC will need to raise production by another 500,000-to-700,000 barrels by the end of the year if it wants to have any real effect on oil prices. He said OPEC already has excess production of 500,000 barrels, so it's really only raising production by about 200,000, making Wednesday's increase a "token effort."
"OPEC doesn't want oil prices to stay high for a long period of time," Lanni said, because "that will choke global demand for growth. When they lose demand, they lose pricing power."
An OPEC spokesman said the oil cartel wants to see a "target" price of $25 a barrel for crude oil, but absolutely no lower than $20 a barrel.
Saudi Arabia's oil minister, Ali Al-Naimi, said there is nothing blocking OPEC from increasing oil production again if Wednesday's increase does not result in lower prices for consumers. Though OPEC ministers aren't scheduled to meet again until Sept. 10, Al-Naimi said he was "confident" that the ministers could vote to increase production before that meeting, if necessary.
 But Lanni said he didn't expect the ministers to raise production again until their Sept. 10 meeting. They're being cautious, he said, because they don't want to flood the market with oil and then get caught in an economic crisis, as occurred in 1997, when OPEC increased production just before the Asian economy imploded, triggering economic crises in other regions and punishing oil prices.
What can the United States do?
Al-Naimi also called on consuming countries to lower taxes on gasoline to help reduce gasoline prices at the pump.
"We have done our part," Al-Naimi said. "Now it is time for them to also do their part to relieve high prices on the consumer if it is really a genuine concern."
Click here for CNN's full coverage of rising gas prices
President Bill Clinton expressed his concern with gas prices, calling for a Federal Trade Commission investigation into their recent, rapid rise, especially in the Midwest.
"We need an aggressive inquiry by the FTC," Clinton told reporters. "There is no economic explanation I can think of, particularly for the run-up in prices in the Midwest."
Retail gasoline prices have soared above $2 a gallon in Chicago and Milwaukee in recent weeks, a level that the president said he had a "lot of concern" about. Prices throughout much of the rest of the nation are more than 50 cents a gallon lower than in the Midwest.
Clinton called for Congress to create more economic incentives for U.S. oil drilling, promote alternative energy and reauthorize the federal Strategic Petroleum Reserve. Without the reauthorization of the emergency oil stockpile, there could be "serious problems" in the Northeast this winter, he said.
Bruce Lanni said there's not much the United States can actually do to lower gas prices, though the Environmental Protection Agency's recent change in standards for gas has affected prices, and some states are considering eliminating their gas taxes to alleviate price pressure.
Lanni said patience was the best weapon for consumers against high prices. Prices should fall, he said, when demand drops at the end of the summer.
"While it's irritating for consumers, they have to realize that there's been essentially no change in gas prices since 1980," he said. "If you adjust for inflation, you're probably paying less today than you were 10 or 20 years ago."
Oil stocks a bargain?
OPEC's promise of a production increase briefly helped U.S. oil stocks Wednesday, as Exxon Mobil Corp. (XOM: Research, Estimates), Texaco Inc. (TX: Research, Estimates) and Chevron (CHV: Research, Estimates) all posted gains.
In Thursday trading, however, Exxon Mobil was down 1-7/16 to 82-1/2, Texaco was down 1-1/16 to 56-11/16 and Chevron was down 1-9/16 to 89-11/16.
Lanni said this was simply a return to form for oil-company stocks, driven in part by investors' fear that the only way for oil prices to go is down. Lanni said investors are missing out on a bargain, and that oil companies' predicted earnings are based on an oil price much lower than it will really be.
"The reality is, major oil companies' earnings projections are reflecting a $19-a-barrel oil price for 2001," Lanni said. "That's too cheap."
"These are growth and value plays," he said of the major oil companies. "They have earnings growth. They have very low price/earning ratios. Right now, it's a great entry point into major oils." 
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