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Saudis Urge OPEC to Hike Oil Output

Posted on: Monday, 10 May 2004, 06:00 CDT

RIYADH, Saudi Arabia - Saudi oil minister Ali Naimi urged OPEC on Monday to raise its production ceiling by 1.5 million barrels a day when it meets on June 3.

The announcement by OPEC's largest producer comes as U.S. prices have risen to nearly $40 a barrel and gasoline prices have been pushing higher with the peak summer driving season approaching. OPEC pumps about a third of the world's oil.

"It is certain that the kingdom believes that increasing the OPEC production ceiling is essential to keep supply and demand balanced," Naimi said in a statement.

He added the increase should "not be less that 1.5 million barrels a day."

Naimi's statement represents a shift in Saudi oil policy. Only in March the kingdom was reportedly the chief advocate of a decision by the Organization of Petroleum Exporting Countries to cut production in anticipation of a lower demand for oil during the spring and summer.

OPEC currently has an official ceiling of 23.5 million barrels a day.

Naimi said he would discuss the market situation with other OPEC members May 22-24 at the International Energy Forum in Amsterdam.

OPEC's June meeting will be held in Beirut, Lebanon.

Naimi said recent price increases were a "major concern" to Saudi Arabia.

"We do not want to see prices rise to the level that they negatively affect the growth of the international economy or the demand for oil," he said.

The minister said the most important reason for higher oil prices is "the market's unwarranted fear of disruptions in supplies from some oil producing countries and regions at a time when only the kingdom and probably two or three other countries have spare production capacity."

Market speculation is another factor, he added. He said traders were holding long-term contracts for commodities such as oil because economic growth was robust and interest rates were low.

Traders said last week they were increasingly worried about the possibility of attacks against petroleum industry targets in the Middle East at a time when supplies are tight and demand is strong.

Oil for June delivery rose as high as $40 Friday on the New York Mercantile Exchange before settling at $39.93 - the highest level in more than 13 years.

The last time the front-month futures contract settled above $40 was on Oct. 11, 1990, when oil was valued at $40.42 per barrel leading up to the Persian Gulf War. In today's dollars, adjusting for inflation, that would be equivalent to $56.83, according to the Energy Department.

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