NEW YORK (CNNfn) - President Clinton Wednesday urged oil companies to pass savings from lower prices on to consumers quickly, as prices for crude oil fell to 10-week lows following OPEC's decision to increase oil production by 1.45 million barrels a day.|
OPEC's move to hike production even received tepid support from Iran, the cartel's second-largest producer. Nine members of the Organization of Petroleum Exporting Countries meeting in Vienna, Austria, agreed Tuesday to boost output by about 7 percent from current levels.
Iran stood by the previous day's statement that it opposed the other OPEC members' plan for higher output, but said it would still raise its production.
CNN's Diana Muriel reports on the OPEC agreement and its impact on European consumers.
That left traders Wednesday assuming that additional supply will begin to trickle its way make its way to North America, rejuvenating depleted stocks and helping eventually lower the price of gasoline -- one of the most striking and significant effects of the recent run-up in global oil prices.
"The announcement ... is good news for our economy and the American consumer. These increases should bring lower prices, which will help to sustain economic growth here in American, and also, and very importantly, throughout the world," Clinton said during a Wednesday press conference.
"It will also, I hope, bring relief to hard-pressed truckers in this country who have been especially hard hit, and others who have high fuel costs, by providing a greater balance between oil production and consumption," the president said. "While home heating costs and prices at the pump are both expected to fall within the next few weeks, I urge the oil companies to do everything they can to bring the savings to consumers as quickly as possible."
Clinton also renewed calls for Congress to seriously explore alternative fuels to reduce the United States' reliance on OPEC nations.
"It is also very, very important, for Congress now to act on my proposal to strengthen our long-term energy security, including new tax incentives and investments to support domestic oil producers, to promote the development and use of alternative fuels and more efficient energy technologies," Clinton said. "We can become much more energy efficient and support economic development."
Analysts were also encouraged by the OPEC agreement.
"The production increase is more than what traders were expecting," said Jordan Horoschak, an oil analyst with S&P Equity Group. "We are going to see some more output in non-OPEC countries such as Mexico and Norway, and the second quarter is typically a period of seasonal slower demand, so those all those factors will play into an easing in oil prices." (536KB WAV) (536KB AIFF)
Oil prices slip lower
On the New York Mercantile Exchange, light crude oil for May delivery fell as much as 89 cents, or 3.3 percent, to $26.20 a barrel -- the lowest price since Jan. 13. Prices still are 61 percent higher than a year ago. Brent crude oil for May delivery fell as much as $1.12, or 4.4 percent, to $24.39 a barrel, also a 2-1/2-month low, before recovering slightly.
The output increase will reverse the cutbacks the cartel implemented a year ago, when oil traded at little more than a third of its current price and producers bemoaned a glut on world markets. Since then, expanding economies around the world have boosted global demand by about 2 million barrels a day.
At the same time, the increase "does very little to really take the heat out of the market," said Julian Lee of the Center for Global Energy Studies in London. "I don't think it will have a big effect. I think what it will probably do is prevent prices from going up again significantly."
The Paris-based International Energy Agency called OPEC's decision a "step in the right direction." But IEA chief Robert Priddle said the production hike, due to start April 1, "will not fully meet the increased demand we foresee later in the year, and it will not bring stocks up to last year's low levels."
Limiting price fluctuations
Saudi Arabia, OPEC's largest member nation, said Wednesday that the cartel wants to limit fluctuations in oil prices and is prepared to raise and restrict supply if necessary. Oil prices have risen as high as $32 a barrel from less than $10 in early 1999. OPEC wants to keep the price of Brent crude oil between $20 and $25 a barrel.
The U.S. government, keen to avoid a 1970s-style energy crunch, on Tuesday welcomed OPEC's decision to increase production, saying it could result in lower prices at the gas pump in a matter of weeks. The announcement is "good news for the American consumer, good news for producer countries, good news for consuming countries," said Energy Secretary Bill Richardson.
Most analysts expect prices at U.S. gas pumps to remain between $1.60 and $2 a gallon for at least six weeks, as any decrease is delayed by the time lag between cutting the price of oil extracted from the ground and getting the refined product to retailers. What's more, much of the extra supply will first contribute to rebuilding depleted fuel reserves, adding to the refineries' wait for increased supplies of oil.
Richardson himself anticipates gasoline prices in the United States will come down. "This means that, for the American consumer, gasoline prices will gradually and steadily decline, possibly -- according to the energy information administration -- as much as 11 cents (a gallon) by the end of September."
Dissent among the ranks
OPEC nations collectively produce about 40 percent of the world's oil supply, or about two of every five barrels of crude oil, with the United States consuming more of its output than any other country. All of the group's 11 members had agreed that some sort of increase was needed, though several of the countries -- notably Libya and Iran -- had disagreed over exactly how much to crank up production.
The extra 1.7 million barrels a day will be added to OPEC's official output limit of 22.976 million barrels a day, a level on which cartel members agreed in March 1999. The group's objective is to provide enough oil to alleviate supply shortages while keeping the crude price around $25 a barrel mark -- a level that economists and Federal Reserve Chairman Alan Greenspan have suggested would not pose an inflationary threat to the U.S. economy.