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Last Updated: Monday, 24 May, 2004, 05:40 GMT 06:40 UK
Saudi Arabia promises extra oil
Saudi foreign minister Prince Saud al-Faisal at Saturday's Arab League summit
Saudi Arabia's action delighted the oil-thirsty big powers
Saudi Arabia has promised to boost its oil output to help stem record prices.

The 800,000 extra barrels pledged will take output to 9.1 million barrels a day, and the effect was to lower oil prices in New York by 1% to below $40.

The offer came just hours after the G7 group of rich states called for lower oil prices at a meeting in New York.

But it has split oil cartel Opec, which last week said it would not boost production quotas before its next meeting on 3 June.

Among critics of Saudi Arabia's decision - and its renewed calls for higher oil output quotas - was Libya, whose own oil minister Fethi bin Chetwane could barely hide his disquiet.

"They can't. It's a mistake," he told reporters after the announcement.

That will add pressure on the other Opec countries to do the right thing
Gordon Brown, UK Chancellor of the Exchequer
"Saudi Arabia can't decide alone to increase production."

In New York early on Monday morning, crude oil was $39.50 a barrel, far below the record of $41.85 set a week ago, while Brent crude - the key London benchmark - was $36.00 a barrel, down $1.26 in the past two sessions.

"It's early days yet, but I think the market is coming round to the fact that the Saudis are determined to do whatever it takes to bring down prices," said David Thurtell, commodities strategist at Commonwealth Bank of Australia in Sydney.


Saudi Arabia, the world's largest oil producer, issued its pledge to pump more oil after Opec members rejected a Saudi proposal over the weekend that the cartel should produce another 2-2.5 million barrels a day.

US oil hit $41.85 a barrel a week ago
That was a 21-year high
Oil consumers are concerned about the threat of inflation

Saudi Arabia also said it might be willing to take its own production all the way up to its daily ceiling of 10.5 million barrels.

The move came after talks between Saudi oil minister Ali al-Naimi and US energy secretary Spencer Abraham in Amsterdam.

Earlier, the G7 had called on oil producers "to provide adequate supplies" to ensure crude prices dropped to avoid risk to global prosperity.

And ahead of the G7 meeting, Gordon Brown, UK Chancellor of the Exchequer, had praised Saudi Arabia's efforts within Opec as "important".

"That will add pressure on the other Opec countries to do the right thing," he said.


Given the dissatisfaction of many of the other 10 countries in Opec, that could be unlikely.

But widespread quota-busting means that most of them have very little spare capacity in any case, analysts believe.

The cartel - which supplies about a third of the world's oil - targets daily output of 23.5 million barrels per day, but members are already pumping 2 million barrels, or 2.5% of global demand, more.

Any Opec increase would largely be met by Saudi Arabia in any case.

And Opec members have also been keen to divert blame for the soaring price of oil.

Opec president Purnomo Yusgiantoro said recently that the cartel could do little to pull prices back within Opec's target range of $22-28 a barrel, because it was demand rather than supply which was causing the trouble.

Global demand for oil is growing rapidly, thanks to a healthier US economy and rapid growth in China - while security fears are adding to pressure on prices.

At the same time, the US is trying to replenish stock piles of petrol, and Asian nations are trying to protect themselves from future price shocks by establishing their own strategic reserves.

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