OPEC Agrees to Remove All Its Limits on Oil Sales

Vikas Bajaj contributed reporting from New York.

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OPEC formally agreed on Tuesday to lift all restrictions on its oil sales for the next three months, a move designed to reassure edgy markets about the security of energy supplies even as a new hurricane threatened America’s oil and gas heartland.

But, again, the attention of oil traders and investors was elsewhere. After climbing on Monday, crude oil prices fell Tuesday on indications that Hurricane Rita was likely to miss the main oil- producing areas of the Gulf of Mexico near the coast of Texas.

Following the two-day meeting, Saudi Arabia, OPEC’s largest member, rallied the oil-producing group to support its 18-month long strategy to sell as much oil as consumers ask for. The kingdom, which always keeps some idle capacity to make up for unpredictable production outages elsewhere, has been pumping above its official production ceiling since May 2004. OPEC’s decision effectively freezes the group’s two-decade quota system, originally designed to prevent prices from dropping too low, and instead legitimizes a production free-for-all intended to bring prices down from their record highs. Because of shortages in U.S. refining capacity, Ali al- Naimi, the Saudi Arabian oil minister, admitted there might be few takers but emphasized the decision’s psychological impact. “OPEC went out of its way and offered all the spare capacity that it has, recognizing that maybe there is no demand, but offering it so that consumers can feel comfortable that the supply is there,” Naimi said. OPEC has so far seemed powerless to rein in soaring prices, which have doubled since the beginning of 2004. Even so, some members like Iran and Venezuela, were reluctant to back the Saudi strategy. Both countries, which produce below their quota levels but do not like to allow more space for Saudi expansions, are also locked in political disputes with the United States.

Still, members of the Organization of Petroleum Exporting Countries agreed to pledge all their remaining extra capacity to the market, saying they could supply an additional two million barrels of oil a day amounting to 7 percent of the group’s current output. Asked whether Saudi Arabia would lower its prices to bring more oil on the market, Naimi emphasized there would be no discounts. “I don’t want to bring it unless the consumers want it,” he said. “If the people don’t want the crude, it is better for it to stay underground.”

Producers, including Saudi Arabia, are enjoying record revenue. But they also recognize that too-high prices might end up crimping demand.

Crude oil for October delivery on the New York Mercantile Exchange, which jumped 7 percent on Monday, fell $1.16, or 1.7 percent, on Tuesday, to $66.23 a barrel.