Crude oil prices slipped below $30 a barrel Thursday in a volatile trading session, as more evidence emerged that Saudi Arabia may have begun to move ahead with a proposed production increase of half a million barrels a day.
Crude oil for August delivery, which expired at the end of the session, climbed to $31.68 then fell as low as $30.25 cents before ending down slightly at $30.93. September crude oil, which is now the benchmark futures contract, climbed to $30.50 and then dropped to $29.65 before settling down 58 cents a barrel at $29.77.
Last minute position-squaring ahead of the August futures' contract expiration prompted some of the price volatility. But crude oil contract prices also came under pressure Thursday on new indications that Saudi Arabia may follow through with its proposed half-million barrels-per-day increase -- with or without the support of its partners in the
Organization of Petroleum Exporting Countries
OPEC's president, Ali Rodriguez, has said publicly that he received assurances from Saudi Arabia that the world's largest oil exporter would not initiate a unilateral production increase. But analysts say oil prices fell on reports that Saudi Arabia may have covertly increased production by 250,000 barrels a day already and intends to double that figure in August. OPEC's largest member pronounced its intention two weeks ago to pump an additional half-million barrels of oil a day to help ease oil prices
In March, OPEC members agreed to increase production through an automatic mechanism designed to keep prices within a $22 to $28 a barrel target price band. 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.
reported Thursday that OPEC's Secretary General, Rilwanu Lukman, said the cartel was prepared to hike supplies "if necessary and when necessary, mechanism or no mechanism."
U.S. Energy Secretary Bill Richardson put more pressure on OPEC producers to move ahead with an output increase. The move came after a
hearing on fuel costs Thursday, publicly praising Saudi Arabia for taking the lead in supporting such an increase and urging the rest of OPEC to follow suit -- a suggestion made a day earlier by Mexico's energy minister.
Still, industry analysts say that even with a 250,000 barrel-a-day increase by Saudi Arabia, oil prices are likely to remain volatile in the near term. As Thursday's price slump fell on the last day of the August contract, it may not provide a clear indication of future movements.
"There are more questions than answers," said Tim Evans, senior analyst at
. "If Saudi Arabia's additional 250,000 barrels per day is going to report straight into world inventories, then that should be effective in putting downward pressure on price. But if demand is strong enough that inventories still do not rise, then the market is still bullish."
part of the
, said it appears that there is enough oil available to justify a further drop in price. "There is not a supply glut, but with the extra 250,000 barrels per day from Saudi in August, the market should be able to move back to $25 basis the OPEC basket," they said in a report.
analysts also predict an easing of oil prices as the summer progresses, with prices falling by $2 to $3 a barrel this summer as U.S. gasoline supply problems ease, concerns about demand growth increase, and expectations more closely reflect OPEC's true price intentions.