WASHINGTON (Reuters) - OPEC reversed
course on Tuesday and announced it would not pump more crude oil, sending
U.S. prices rocketing by more than $1 a barrel and prompting a plea by
the Clinton administration for the cartel to reconsider its action.
OPEC's latest action came in apparent defiance of Washington,
which had eagerly awaited the cartel's expected production increase of
500,000 barrels per day at the end of July to feed the world's growing
appetite for oil.
But instead, OPEC President Ali Rodriguez announced in Caracas
that there would be no oil output rise this month because oil prices had
fallen below the cartel's $28 a barrel price band.
The news sent U.S. oil futures prices soaring by $1.11 a barrel
to close at $31.94 a barrel, up nearly four percent for the day.
The Clinton administration, which has used quiet diplomacy to
influence key members of the Organization of Petroleum Exporting Countries,
urged the cartel to reconsider.
``We've asked the OPEC nations to keep an open mind about increased
oil production, and we continue to believe an increase is good for both
producing and consuming nations,'' White House spokesman Elliot Diringer
told Reuters.
The administration has been seeking more supplies from OPEC to
lower crude oil, gasoline and heating oil prices that it fears could slow
the U.S. and world economy.
Government statistics released on Tuesday showed U.S. consumer
prices rose 0.6 percent in June, largely due to higher prices for fuel,
airfares and other transportation. The consumer price index is the nation's
broadest gauge of inflation.
An economic turndown would also hurt OPEC members, the administration
has argued, because oil consuming nations would reduce their petroleum
imports.
``We need a better balance between supply and demand in order
to sustain economic growth,'' U.S. Energy Secretary Bill Richardson told
Reuters.
Richardson said the markets have indicated that crude oil and
gasoline stocks are too low, and the administration wants to make sure
there are adequate home heating oil inventories going into the winter.
``The administration will continue to do everything possible to
ensure that American consumers have adequate supplies of oil and petroleum
products to meet their energy needs,'' he said.
OPEC FLIP FLOP DUE TO PRICE BAND
Rodriguez had told OPEC members on Monday to be ready to ramp
up daily production by half a million barrels at the end of the month if
oil prices remained high.
But on Tuesday, he said the cartel's new mechanism to trigger
an increase in crude oil production could occur only if the OPEC basket
price stayed above $28 a barrel for 20 consecutive days.
The price of OPEC's basket of crude fell to $27.46 a barrel on
Monday, according to the OPEC secretariat in Vienna.
``The agreement is that if the price falls under $28, then the
20-day process will begin again...If the price remains under $28 there
will be no increase,'' Rodriguez told reporters.
Saudi Arabia has already acted to pump some of the extra oil.
Saudi, the world's biggest producer, said earlier this month it
was prepared to act alone to produce 500,000 barrels per day if necessary
to push crude oil prices back down to OPEC's target of about $25 a barrel.
Traders have said the Saudis began pumping more oil shortly after
that announcement and have signed contracts to provide about 250,000 barrels
a day in new crude to the United States and the Far East, but not Europe.
``Recent conflicting signals on possible production increases
have created confusion in oil markets,'' Richardson said.
Sen. Frank Murkowski, who heads the Senate Energy Committee, said
there was nothing the Clinton administration could do to convince OPEC
to raise production because the cartel knows the United States needs its
oil.
``We are dependent customers and they (OPEC) got something to
sell,'' said the Alaska Republican. ``They got us and they're enjoying
the cash flow.''
The U.S. imports about 56 percent of its oil needs.
Murkowski said the only solution to the problem is to increase
domestic production by giving energy companies drilling access to more
federal lands. President Bill Clinton has said he would veto any legislation
to open pristine Alaska lands to drilling.
Earlier this year, OPEC agreed to increase its output amid rapidly
dwindling inventories worldwide and fierce criticism from U.S. lawmakers.
In March, the cartel agreed to raise output by 1.7 million barrels per
day, and in June increased output by another 708,000 barrels per day.