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This is an archive article published on March 22, 2000

Oil tumbles five per cent as output rise looms

London, March 21: Tumbling oil prices shed five per cent on late Monday on expectations that Organisation of Petroleum Exporting Countries...

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London, March 21: Tumbling oil prices shed five per cent on late Monday on expectations that Organisation of Petroleum Exporting Countries (OPEC) meet next week would heed consumer calls for more supply and open its taps.

Benchmark Brent crude fell $ 1.35 to settle at $ 25.21 a barrel, five per cent down on the day and its lowest for nine weeks. The final trade was off $ 6.74 a barrel or 21 per cent lower than Brent’s 9-year peak of $31.95 on March 7. April New York Mercantile Exchange the US light crudes fell below $ 30 for the first time this month, trading last at $29.49 for a loss of $ 1.42.

Dealers said investment funds were getting out of the market amid expectations that the OPEC export cartel will hike output after current production curbs expire at the end of March. OPEC is under pressure from consuming nations to hike output to replenish depleted stocks when pledged production curbs of 4.3 million barrels per day (bpd) expire at the end of March.

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The OPEC will meet in Vienna on March 27 to decide policy, but some analysts fear OPEC will be overly cautious for fear of scaring jittery futures markets into free fall. "Whatever OPEC decides, it is unlikely to help the United States resolve its looming gasoline crunch," the Centre for Global Energy Studies (CGES) said.

"Gasoline prices in the US are likely to go higher still,"the London-based think tank said. Prices have trebled thanks to the output cuts, setting off a heated political debate in key importer the United States, where emotions are running high over buoyant US gasoline prices.

The CGES said OPEC needed to add three million bpd to its existing quota total to deliver a net two million bpd increase, taking into account a CGES estimate of current overproduction.

But it said OPEC was likely to be more cautious in view of its internal divisions. A much easier option would be for OPEC simply to reverse the cuts it made in March 1999, it said.

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Luis Tellez, energy Minister of non-OPEC Mexico, an OPEC ally, said he foresaw a "light" drop in prices in the second quarter after OPEC increases output, though robust demand would stifle most of any potential price fall.

Leading producers, including Saudi Arabia, are believed to favour extra OPEC supply of about 1.5 million barrels a day.

Price hawk Iran prefers less than a million barrels daily while smaller OPEC nations Libya and Algeria want to postpone any increase for at least three months.

In addition OPEC unofficially also may turn a blind eye to recent leakage which has seen output running some 1.2 million bpd above official quotas. It is thought unlikely, though, that the group will readjust last April’s quotas upward — before adding new oil — to reflect that leakage.

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In an apparent attempt to lend weight to calls for more oil,the International Energy Agency said some oil-importing developing countries would suffer significant trade deficits if oil prices continue at current levels until the end of the year.

Such a development would harm global growth and would place a burden on still-fragile Asian economic recovery, the West’s Paris-based energy watchdog said in a statement.

IEA executive director Robert Priddle said separately world oil output needed to rise by 5,00,000 to one million bpd just to balance supply and demand in the coming three months.

Venezuela’s energy and mines minister Ali Rodriguez said in Kuwait on Monday that producers should be careful not to raise output by an amount too small to have an impact on the market. "If the increase is so little may be it will not have any effect on the market," he said, on the third leg of his tour of five OPEC countries ahead of the cartel meeting.

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