Oil Trades Above $127 on Skepticism Saudi Move Will Cut Prices

By Mark Shenk


May 20 (Bloomberg) -- Crude oil was little changed amid skepticism that Saudi Arabia's decision to increase output by 300,000 barrels a day will be sufficient to reduce prices.

Saudi Arabia will boost production by about 3.3 percent to 9.45 million barrels a day in June, Oil Minister Ali al-Naimi said in Riyadh on May 16. The gain won't subdue prices because they have been driven higher by the weak U.S. dollar and not supply, OPEC President Chakib Khelil said yesterday.

``OPEC seems pretty happy with production where it is,'' said Tom Bentz, a broker at BNP Paribas in New York. ``The Saudi announcement of a 300,000 barrel-a-day production gain is not enough to send prices lower, it's not a huge amount.''

Crude oil for June delivery rose 20 cents to $127.25 a barrel at 8:25 a.m. in Sydney in after-hours trading on the New York Mercantile Exchange. Yesterday, the contract rose 76 cents, or 0.6 percent, to $127.05 a barrel, a record close. Prices are 92 percent higher than a year ago. Crude touched $127.82 on May 16, the highest price since trading began in 1983.

The Saudi announcement followed a meeting between President George W. Bush and King Abdullah. The desert kingdom is the world's largest oil exporter and the most influential member of the Organization of Petroleum Exporting Countries.

Khelil said the output increase represented a ``sovereign decision'' on the part of Saudi Arabia, rather than an agreement that had the backing of OPEC. Khelil spoke in an interview in Algiers where he is attending a conference.

OPEC Meeting

``OPEC could increase production at the Sept. 9 meeting if there is need in the market,'' Khelil said. ``Non-OPEC countries did not reach their expected production.''

Members of OPEC, who pump more than 40 percent of the world's oil, have kept production targets unchanged at the group's past three meetings, on March 5, Feb. 1 and Dec. 5.

The U.S. Energy Department last week said it won't proceed with plans to increase deliveries of oil to the Strategic Petroleum Reserve. The department is currently filling the reserve at a rate of about 68,000 barrels a day.

``Some people thought the Saudi announcement that they were increasing output and the Energy Department saying that deliveries to the SPR will end might be enough to calm the market,'' said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. ``It doesn't look like that's the case.''

Brent oil for July settlement rose 7 cents to close at a record $125.06 a barrel on London's ICE Futures Europe exchange yesterday. The contract touched a $126.34 on May 16, an intraday high.

A Norwegian airport strike threatens to cut access to North Sea oil platforms. Unions shut six airports, including Bergen and Kristiansund, the two biggest bases for helicopter transport to and from oil platforms on the Norwegian continental shelf. The strike may extend today to Stavanger's Sola airport amid a labor dispute with Avinor AS, which operates 46 airports.

ConocoPhillips said it may have to cut output from the Ekofisk field if a strike spreads to Stavanger. Ekofisk pumps about 400,000 barrels of oil a day.