Oil defies gravity despite Saudi Arabia output hint

Prices have refused to budge from current sky-high levels,with support coming largely from fears that US heating oil supplies may fall short this winter. US light crude was 10 cents off at $33.02. Oil’s rally survived word on Thursday that Saudi Arabia would push for more than an expected 500,000 barrels per day (bpd) cartel output hike at a meeting of the group this month.

An Organisation of the Petroleum Exporting Countries (OPEC) delegate said that the kingdom was prepared to go it alone, if other OPEC producers were unable or unwilling to unleash new supplies.

The OPEC delegate said Saudi Arabia was already approaching an extra 500,000 bpd above its official OPEC quota. Any extra volumes agreed at the September meeting for October supplies would come on top of that leakage. The market on Friday remained unimpressed.

A day earlier, the kingdom’s leading petroleum authority, the Supreme Petroleum Council (SPC) released a statement saying it would work with OPEC for a "suitable rise" in output. The market largely shrugged off these remarks, even though it was the first statement in weeks from Saudi, the world’s largest exporter. "Traders do not generally believe that 0.5 million bpd will be sufficient given the recent rise in prices," said London brokers GNI. Goldman Sachs noted in a commentary that global inventories of crude and products relative to demand on a seasonal basis were at their lowest level since the 1970s. "We continue to expect extreme price volatility will increasingly characterise the market over the next several months, with the potential for significant upward spikes in prices," it added.

OPEC has already tried and failed this year to tame runaway prices with output hikes of around 2.4 million bpd.

Last month fears that US heating oil supplies may fall short this winter pushed Brent to a 10-year high of $32.80 and US crude to within $1 of a new post-Gulf War record. Venezuela oil minister and OPEC president Ali Rodriguez has urged consumer countries to join the fight against high prices, saying supply was not the problem.

"Most analysts agree that prices could surpass $40 per barrel by the end of the year if consuming countries do not help us stabilise prices," he said in a radio interview. Rodriguez had blamed the current oil rally on speculators, high oil consumption taxes, and refinery bottlenecks.

Expensive oil has spelt misery for worldwide transportation from airlines to truck firms, all struggling with inflated costs. Big oil importers like the United States, facing an election year, together with Europe and Japan have voiced their concern. The US national average retail price for unleaded gasoline hit $1.48 a gallon this week, the highest on record going into any Labor Day weekend, according to an Energy Department survey.

Bulls drew strength from word from industry sources that Iraq will only be able to keep current levels of export through the year and will not meet proposed increases in production.

And non-OPEC Mexico, normally in favour of moderating oil price spikes, surprised observers on Thursday with the bullish comment that global oil markets appeared in good shape. Energy Minister Luis Tellez told El Financiero no new crude was needed from world producers.