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The BBC's Richard Quest
"These are tough times for Opec"
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Julian Lee, Energy Analyst
"This is highly unusual"
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Thursday, 6 July, 2000, 06:50 GMT 07:50 UK
Oil price still falling
Kuwait oil field
Saudia Arabia and Kuwait are the only Opec countries with spare capacity
Crude oil prices are continuing their slide, with the benchmark price of one barrel Brent crude oil remaining below $30.

Brent crude fell sharply following Saudi Arabia's announcement on Monday that it might boost production by 500,000 barrels a day.

Brent crude for August delivery closed down 20 cents on the day on Wednesday to $29.35 a barrel, sharply lower than its Monday peak of $31.25 prior to the Saudi statement.

But it will be some time before consumers see the difference.

petrol pump nozzle
Crude oil prices are falling, but pump prices are likely to stay high for weeks to come

Traders are expecting the Saudis to start pumping more crude oil in the days to come.

However, there are fears that Saudi Arabia could may just have been posturing to bring down the price of oil, and that it will not act without the full consent of its fellow members of the Organisation of Petroleum Exporting Countries (Opec).

There have been mixed signals with expectations that other Opec members are about to join the Saudis in boosting production, but a senior Opec official seemed to dampen any hopes of increased production.

Opec President Ali Rodriguez said the organisation would only raise output insisted the cartel will raise production only after full consultations and the agreement of all members.

"The Opec secretary general informed me officially that there was no idea by any country to raise output unilaterally," he said.

"We all continue to share what has been a longstanding practice in Opec to take decisions unanimously and after consultation."

But Mr Rodriguez said that "if the price stays above $28 for a long time, Opec would take actions."

Will others join the Saudis?

But other sources said that the United Arab Emirates, Kuwait and Algeria could join Saudi Arabia by increasing supply by an overall 500,000 barrels a day, with the Saudis contributing to the bulk of the increase.

The sources said an announcement was expected within the next few days.

"The Saudis were prepared to do the increase alone but always intended to do it in an Opec context. With the support of these others, it is a certainty that will be announced in days not weeks," a senior Opec source said.

The Saudi oil minister made his announcement only two days after an Opec agreement to increase production by 708,000 barrels a day had come into force.

Opec has committed itself to push crude oil prices down to a level of about $25 a barrel, in an attempt to meet the demands of both consumers and producers.

However, two previous production increases initiated by Opec failed to move the oil price below $30 a barrel.

Analysts now say that Saudi Arabia's move could push the price to a level of about $28.35.

The news will encourage consumers and politicians in Western governments, who have come under pressure after pump prices soared.

Eighteen months ago, a barrel of Brent crude oil was trading for as little as $10.

Saudi officials fear customers could switch to other fuels unless they act to bring the price down.

Political tensions

There is also increasing political pressure from Saudi Arabia's foreign allies.

In the United States, Vice-President Al Gore reportedly fears for his re-election chances if the Washington administration fails to drive down petrol prices, which have soared to $2 per US gallon.

In the UK, where fuel taxes make up a far greater percentage of the total price, the government has come under pressure to reduce taxes and therefore prices as well.

At the weekend, Prime Minister Tony Blair delivered a "pay up or shut up" message to those campaigning for lower petrol prices in the UK, claiming a cut in taxes would mean cuts in essential services such as health.

In the medium term, Saudi Arabia's decision to increase its crude oil production should indeed drive down prices at the petrol pumps.

But Saudi Arabia is one of the few Opec countries that could actually sell more oil.

Only Kuwait is known too have some spare capacity, while the Saudis have reportedly approached Mexico, a non-Opec member, to see if they could boost output.

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See also:

03 Jul 00 | UK Politics
Petrol price row deepens
20 Jun 00 | World
Opec: The oil cartel
23 Jun 00 | Business
Opec fails to stem price rises
24 Mar 00 | World
Q&A: Oil
21 Jun 00 | Business
Opec agrees output boost
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