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Oil falls on Saudi move
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July 4, 2000: 12:44 p.m. ET
Seeking lower crude prices, OPEC leader to increase production
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LONDON (CNNfn) - Oil prices fell Tuesday after Saudi Arabia said it would increase oil production in an effort to bring prices down to around $25 a barrel.
News of the plan sparked fury among other OPEC members who sharply criticized the move by the world's biggest oil producer to press ahead with its own increase.
U.S. Vice President Al Gore, meanwhile, praised the surprise move on a day when millions of American drivers traveling over the Fourth of July holiday sought relief from the highest gasoline prices in years.
In London trading, oil prices fell just below the key $30-a barrel mark after Saudi Arabia said late Monday it would up output by 500,000 barrels a day. The Brent crude oil contract for August delivery fell $1.53 a barrel to settle at $29.57 in London trading Tuesday, down from Monday's close of $31.10.
The drop came after a Saudi spokesman said Monday that high oil prices were not in the interest of oil producers or consumers, and that the Saudis would like prices to drop to $25 per barrel from current levels of more than $30.
"We have sought, and will continue in any way we can, to bring the prices down from their current level to the target level of $25 per barrel of OPEC basket of crudes," Saudi oil minister Ali al-Naimi said in an interview with the official Saudi news agency SPA.
Though al-Naimi said the increase could take effect "in the next few days," the Saudi embassy later told CNNfn that the increase would take effect immediately.
Backlash
But the move sparked concern among members of OPEC, who produce 40 percent of the world's oil. A Qatari official said Saudi Arabia was not consulting with other OPEC nations in preparing to raise oil production. Asked about Qatar's position on the Saudi announcement, the official said: "Nobody can comment on that. It is a unilateral decision."
Meanwhile, OPEC President Ali Rodriguez told reporters in Caracas he knew nothing about Saudi Arabia's decision. Rodriguez, the Venezuelan oil minister, said it was essential for the 11 OPEC members to consult on any output move.
"I think that before Saudi Arabia takes any decision it is essential to hold consultations. Until now we have always taken decisions by consensus," he added.
Rodriguez said he would call Saudi Arabian Oil Minister Ali al-Naimi on Tuesday afternoon to discuss the Saudi proposal. He declined to comment further until he had first hand information from his Saudi counterpart.
He also denied the surprise move threatened the unity of the Organization of Petroleum Exporting Countries (OPEC) although at least one analyst disagreed.
Describing the Saudi action as a "totally shocking move", analyst Lawrence Eagles of London-based brokerage GNI told CNNfn.com: "The Saudis are stamping their authority on the world oil market, but at the expense of relations within the cartel and the Middle East."
Gore grateful
Gore wasted little time in thanking the Saudis.
Speaking on the campaign trail, the presumptive Democratic candidate for president said he was "very pleased" to hear word of the Saudi increase, and urged oil companies to pass any savings to consumers.
"I want to call on the big oil companies to let that (Saudi output increase) pass through in the form of price reductions to the people who are filling their cars up at the gasoline filling stations, so that it is not blocked up in the pipeline of profit, but rather flows through," Gore said.
Pressure is building in the United States, the world's largest oil consumer and a close Saudi ally, for relief from high gasoline prices.
Still, even if the move significantly lowers oil prices, the cost of gas could remain high for a while. It takes several weeks for oil costs to make their way down the production chain and affect gas prices.
Clinton administration officials welcomed the Saudi output announcement. P.J. Crowley, spokesman for the National Security Council, said the administration had long urged Saudi Arabia and other OPEC nations to increase production to stabilize the world's oil supply and thus lower prices for crude and gasoline.
Crowley declined to say whether President Clinton or Energy Secretary Bill Richardson made any recent requests for higher Saudi oil production. A spokesman for Richardson said he had no comment.
A stake in lower prices
Saudi Arabia's pledge comes less than two weeks after OPEC, meeting in Vienna, Austria, agreed for the second time this year to raise production. OPEC lifted output for 10 members by 708,000 barrels daily to 25.4 million barrels a day. Saudi Arabia had reportedly been trying to persuade other producers to raise exports above that level.
Oil prices have not gone down, despite last month's increase.
Al-Naimi said tightness in the United States heating oil and gasoline markets was helping to push crude oil prices above $30 a barrel. Relatively lean inventories of crude and products were also keeping prices firm, the oil minister said.
The Saudi economy is 70 percent dependent on oil revenue. Saudi officials fear they will be hurt in the long run if prices remain high. While they need price stability to help plan spending, high prices might reduce demand and persuade consumers to turn to alternative fuels.
On the New York Mercantile Exchange, light sweet crude for August delivery closed Friday at $32.50 a barrel. There was no trading Monday and Tuesday as the U.S. market closed for the Independence Day holiday.
The news hit oil company stocks in Europe, with BP Amoco PLC (BPA) and Shell Transport & Trading PLC (SHEL) both down almost 1 percent in London. The exception was France's TotalFinaElf SA (PFP), which jumped more than 3 percent on unconfirmed reports of a big oil find in Kazakhstan.
OPEC's members are Saudi Arabia, Iran, the United Arab Emirates, Kuwait, Qatar, Nigeria, Libya, Algeria, Venezuela, Indonesia and Iraq. The Iraqis have not participated in recent OPEC production pacts because of a United Nations restriction on exports. 
-- staff and wire reports
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