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Last Updated: Thursday, 1 July, 2004, 21:20 GMT 22:20 UK
Oil prices surge on output fears
Saudi Arabia's oil minister Ali Naimi
Saudi Arabia's Ali Naimi may have sparked the latest price rises
Oil prices have surged again on jitters over dwindling US reserves and fears Opec may renege on its vow to up output

US traded crude hit highs of $39.10 a barrel before settling $1.69 higher at $38.74, while UK Brent crude closed $1.57 up at $36.07.

The jump follows US energy data showing its crude supplies had dropped 500,000 barrels to 304.9 million barrels.

Meanwhile, Opec member Saudi Arabia has hinted the producers cartel may not be raising its output quotas further.

Earlier on the trading day, oil prices had slipped back after making gains of more than $1 a barrel on Wednesday.

Opec worries

The price (of oil) is fair and there is no reason to take a measure to reduce or increase production
Ali al-Naimi, Saudi oil minister
That surge followed Saudi oil minister Ali al-Naimi's comments that current prices were fair, following Opec efforts to increase output in a recent bid to drive down prices.

But Mr al-Naimi sparked fears that Opec may backtrack on planned output increases after saying the cartel would wait until its 21 July meeting to make any decision on boosting production.

"Actual oil prices are fixed by the market and not by Opec," the minister told reporters after being quizzed whether Opec would go ahead with production increases slated for 1 July.

"The price is fair and there is no reason to take a measure to reduce or increase production," he added.

Record highs

As prices spiralled ever higher in recent months, amid concerns that attacks on pipelines and security fears would hit supply, it prompted the group of mainly Middle Eastern producers on 3 June to agree to raise output quotas by 2 million barrels a day from 1 July and a further 500,000 b/d from 1 August.

That decision prompted oil prices to drop from record highs of $45.25 a barrel in US trade to a more manageable level around the $39 mark.

However, Mr al-Naimi's recent comments prompted Investec Securities analysts Bruce Evers to question Opec's promise.

"What Opec and the Saudis don't want to do is put too much oil in the marketplace and too much downward pressure on prices," Mr Evers told Reuters.

Experts also said that oil prices were likely to move higher on short covering deals in the US ahead of the long 4 July holiday weekend there.

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