MARKET WATCHOil prices fall as Saudi minister calls for more OPEC production

Sam Fletcher
Senior Writer

HOUSTON, May 11 -- Energy prices plunged Monday as Ali I. Naimi, Saudi Arabia's energy minister, called for the Organization of Petroleum Exporting Countries to hike its production quotas by 1.5 million b/d at their June 3 meeting in Beirut.

If OPEC members were to follow through on Naimi's suggestion, it would mark the first official hike in the group's production since January 2003 and would eliminate its most recent production cut of 1 million b/d to 23.5 million b/d that went into effect Apr. 1.

However, some critics claimed Naimi's proposal is essentially meaningless, since OPEC is estimated to have overproduced its current quota by 2 million b/d in April. Moreover, other OPEC ministers and some analysts claim an increase in OPEC's production would do little to lower US wholesale gasoline prices at the pump resulting from infrastructure problems and US government regulation of reformulated gasoline (OGJ Online, May 10, 2004). Several pointed out that most OPEC members already are producing at maximum capacity.

Yet markets reacted quickly to Naimi's proposal Monday since Saudi Arabia is the biggest single producer within OPEC and one of the few with additional production capacity that can be tapped. The price fall was limited, however, by weekend reports that exports of crude through Iraq's northern pipeline had been halted, analysts said. Traders are still worried about the potential of terrorist attacks on energy facilities in the Middle East.

Energy prices
The June contract for benchmark US sweet, light crudes plunged by $1 to $38.93/bbl Monday on the New York Mercantile Exchange, as did West Texas Intermediate at Cushing, Okla., on the US spot market. The July crude contract lost 96¢ to $38.75/bbl on NYMEX.

Gasoline for June delivery on NYMEX plummeted by 4.23¢ to $1.2963/gal Monday, breaking a series of daily record highs last week. Heating oil for the same month lost 3.68¢ to 97.96¢/gal. The June natural gas contract fell by 11¢ to $6.18/Mcf, "undermined by a sharp sell-off in crude oil futures and a slightly softer cash [spot natural gas] market, although warmer weather forecasts this week helped limit losses," said analysts Tuesday at Enerfax Daily.

In London, the June contract for North Sea Brent crude fell by $1.03 to $35.97/bbl Monday on the International Petroleum Exchange. Gas oil for May delivery was down by $3.50 to $324.75/tonne. However, the June natural gas contract jumped by 5.1¢ to $3.75/Mcf on IPE.

The average price for OPEC's basket of seven benchmark crudes declined by 70¢ to $35.42/bbl Monday.

Contact Sam Fletcher at [email protected]