A decision by leading oil producers to boost output by 800,000 barrels a day failed to dampen prices in early New York trading Monday, as US officials and analysts gave a guarded welcome to the weekend move by OPEC ministers.
Benchmark light sweet crude for October delivery rose 97 cents to 34.60 dollars a barrel soon after the market opened at 1400 GMT. The price had fallen 1.76 dollars to 33.63 dollars Friday ahead of the weekend decision by the oil cartel to boost output.
In London, however, oil prices sagged after OPEC Secretary-General Rilwanu Lukman said the Organization of Petroleum Exporting Countries (OPEC) could approve an additional production increase -- perhaps by early November -- if prices remain high.
OPEC had come under heavy pressure from oil consuming nations, notably the United States and members of the European Union, to take action at its Vienna meeting after prices surged to 10-year-highs of more than 35 dollars last week.
"Prices are likely to fall to 30 dollars over the next weeks but they won't collapse, because of the production shortage," predicted Lawrence Eagles, an analyst with GNI in London.
In the United States, Energy Secretary Bill Richardson welcomed the OPEC decision, which raised production by about 100,000 barrels a day beyond what had been expected.
But he cautioned that "whether such an increase will stabilize the market remains to be seen."
For analyst Chris Schachte of GSC Energy in Atlanta, Georgia, the impact of the organization's response will depend on "whether OPEC will actually pump that increase or whether it will just ratify the overproduction they were already pumping."
He said the cartel had already been estimated to have been turning out between 700,000 and 800,000 barrels a day above its quota. But he also noted that Saudi officials maintain that the extra 800,000 barrels -- above the current overproduction -- will indeed make it onto the market.
"From that standpoint, things look good, but you can't be sure."
Another specialist, W.H. Brown of New York-based consultants W.H. Brown and Company, warned that "the real physical impact" will be limited to 300,000 barrels a day because apart from Saudi Arabia and the United Arab Emirates most OPEC members are unable to pump more.
"When you add it all up, it really doesn't come to more than 300,000 barrels a day. No one else (apart from Saudi Arabia and the UAE) can produce these new quotas. They're maxed out."
Brown added that higher oil prices, which have surged by more than 15 percent, were not likely to trigger a recession in the United States, "but they are going to help confirm a slowdown."
Economist Henry Willmore at Barclay's Capital has predicted that the country's oil import bill would increase by about 55 billion dollars this year, or more than 0.5 percent of gross domestic product.
That could help shave one percent off US economic growth in 2001, he said.
Higher energy prices are felt most importantly on transportation costs, wage inflation and inflationary expectations, according to Willmore, who said the effect on consumer prices should be seen in inflation figures for September and October.
While the spike in energy costs has not as yet upset inflation expectations, "the longer it continues ... the greater the risk that workers will seek and receive wage increases to offset the loss in purchasing power cause by higher energy prices," Willmore said.—AFP.
©--Agence France Presse.
© 2000 Mena Report (www.menareport.com)
