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Last Updated: Friday, 21 May, 2004, 21:00 GMT 22:00 UK
Saudi plays up oil output boost
A Saudi oil worker watching a well
Saudi Arabia has been backing an output boost
World oil prices skidded lower on Friday after Saudi Arabia proposed an Opec production increase of more than two million barrels a day.

Saudi oil minister Ali al-Naimi said he would call on the oil cartel to lift production quotas by 8.5% from current limits of 23.5m barrels a day.

Cartel ministers are holding informal talks on 22 May to consider the plan.

In London, benchmark Brent crude was $36.53 a barrel, down 73 cents, and in New York, down 88 cents at $39.92.

I don't think that control (of prices) is in Opec's hands
Obaid bin Saif al-Nasseri, United Arab Emirates oil minister

The fact that US oil has been above $40 a barrel for almost two weeks has triggered concerns in many countries about the potential risk to global growth.

UK Chancellor Gordon Brown has been among them, warning late on Thursday that Opec needed to move "in the next few days".

Others from the Group of Seven rich nations, whose finance ministers meet this weekend, have voiced similar concerns.

Blame

However, an earlier suggestion from Saudi Arabia that the Opec quota should rise by 1.5m barrels has already met with little enthusiasm within the organisation.

"I don't think that control (of prices) is in Opec's hands," United Arab Emirates oil minister Obaid bin Saif al-Nasseri told Reuters.

"There are many factors behind these prices."

Other ministers suggested that the most that could come out of Amsterdam would be a "symbolic" statement, rather than concrete action.

The argument from Opec members is that straitened supplies are not the only problem.

The Saudis are trying shock treatment
Nauman Barakat, Refco

Instead, demand is shooting up, particularly from China - whose April imports were 26.7% higher than in the previous year.

Also to blame are heightened tensions in Iraq and elsewhere in the Middle East, and bottlenecks in US refineries, they say.

To the limit

In any case, recent figures show that Opec nations are already over-producing by as much as 2m barrels a day.

Any increase in production would come almost entirely from Saudi Arabia, since other members are near their maximum output.

In particular, Saudi Arabia is keen to prevent a hit on fuel demand, thus avoiding any outcries from major petroleum importers like the US.

"The Saudis are trying shock treatment," said Nauman Barakat, senior vice president at brokers Refco.

"The question is whether this will do the trick. With this sort of increase the Saudis effectively have played their last card because once they do this there's no further scope for any real extra production."


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