Conflicting comments among members of the
Organization of Petroleum Exporting Countries
fueled renewed speculation over when -- or whether -- the oil cartel could increase production, sending future crude oil prices up nearly a dollar and a half Tuesday.
price of crude oil slated for August delivery closed the day up 99 cents at $31.94, after climbing as high as $32.40 earlier in the day.
On Monday, OPEC president Ali Rodriguez said its members should be prepared to follow through with a half-million barrel-a-day production increase by the end of the month if prices remain high. The increase had been proposed by Saudi Arabia.
Under an informal agreement reached in June, OPEC oil ministers agreed to consider increasing production by a half-million barrels a day if the price of the cartel's basket stayed above $28 for 20 consecutive days.
Two weeks ago, cartel kingpin Saudi Arabia, the world's largest oil exporter, pronounced its
intention to pump an additional half-million barrels of oil a day to help ease oil prices. But, while it has the capacity to carry through with the increase unilaterally, it seems to have backed down after encountering resistance from other OPEC members.
To add to the confusion, within hours of Rodriguez's announcement, the OPEC basket price for crude oil slipped to $27.46, after spending 10 straight days above $28, thereby resetting the 20-day calendar for the production increase under OPEC's price-band mechanism.
Bijan Namdar Zangeneh, Iran's oil minister, was reported Tuesday to have said OPEC would not raise output by 500,000 barrels a day if the price basket fell below $28 a barrel.
But later in the day,
Dow Jones News Service
reported that OPEC president Rodriguez had confirmed the cartel will reset its price-band mechanism, counting from Tuesday the 20 trading days oil needs to stay above $28 a barrel before production is increased. Rodriguez added that Saudi Arabia Oil Minister Ali Naimi "personally assured me they won't increase production unilaterally."
OPEC members appear divided on the need for an output hike so soon after the June 21
agreement to increase production by 708,000 barrels a day. The agreement went into effect on July 1. However, the actual increase in production is expected to be much lower -- by some estimates, just 300,000 extra barrels a day -- as many OPEC members were already exceeding their production quotas, producing at or near capacity before the new agreement went into effect.
Even if the cartel goes forward with the half-million barrel-a-day increase in its production ceiling, industry analysts say the effect would be diluted because so many members are already producing at capacity.
estimate that if every OPEC member with spare capacity produced to its quota ceiling, it would translate to just 262,000 additional barrels of oil per day. While Saudi Arabia could make up the difference, they said, the Saudis would have to do so by cheating.
GNI said it should be hard for OPEC members to argue that they should not raise output when Monday's price drop seems to be directly related to Rodriguez's comments. "But with many cartel members arguing that it should stick by the letter of the price mechanism, who is to say that the output hike would truly happen?"
Saudi Arabia has been outspoken in its support for another production increase to ease overheating oil prices, but other OPEC members, fearing plunging prices, have opposed the plan in favor of the price band mechanism.