Oil prices drop after OPEC member hints of a supply increase

By Brad Foss, Associated Press, 12/30/2002 18:15

NEW YORK (AP) A hint from Kuwait's oil minister that OPEC would consider increasing supplies if prices remained at current levels for much longer soothed energy traders Monday and cooled red-hot energy markets around the world.

Light, sweet crude for February delivery slumped $1.35 to settle at $31.37 a barrel on the New York Mercantile Exchange. Wholesale prices for heating oil and gasoline also fell.

In London, Brent crude futures for February delivery fell 50 cents to $29.66 per barrel on the International Petroleum Exchange.

At the retail level, though, gasoline prices remain on an upward trend as refiners pass along the high cost of crude to motorists.

The Energy Department reported Monday that the average retail price of unleaded gasoline rose 4 cents last week to $1.44 per gallon. The average price at the pump has now gone up 8 cents in the past two weeks.

While oil prices ended the day lower, they started off much higher, reaching a new two-year high of $33.65 in New York and a 15-month high of $31.02 in London.

''It is pretty much as it has been for the past month the two driving factors being Iraq and Venezuela,'' said Orrin Middleton, an oil analyst at Barclays Capital.

World oil prices have soared in recent weeks because of supply concerns stemming from the crippling of Venezuela's petroleum industry and a possible war in Iraq.

Venezuela's oil minister sought to assuage oil markets Monday by saying the country's oil production, refining and exports stymied by a monthlong nationwide strike would be back to normal by the end of January.

''By next week, production should stand at 1.2 million barrels per day and I think we can re-establish all operations within a month,'' Rafael Ramirez told reporters.

But analysts said it was the possibility of added supplies from the Organization of Petroleum Exporting Countries, not the statement from Venezuela's oil minister, that sent global energy prices lower.

''It was really the OPEC thing,'' said Ed Silliere, an analyst at Energy Merchant LLC in New York.

Heating oil futures dropped 4.05 cents to 86.74 cents per gallon in New York trading, while gasoline futures were down 5.33 cents at 87.92 cents per gallon.

Over the weekend, Kuwaiti Oil Minister Sheik Ahmed Fahd Al Ahmed Al Sabah said OPEC would consider meeting to discuss an increase in output if oil prices remain high for a prolonged period, The Times of London reported Monday.

''I can assure you that OPEC will meet if the price stays high,'' the newspaper quoted him as saying.

Under OPEC's output mechanism, an increase in production can be triggered if the price of its benchmark basket of crudes remains above the preferred range of $22-$28 a barrel for 20 consecutive days.

The basket price has been above $28 a barrel for nine consecutive trading days.

Still, concerns about Venezuela and a possible U.S.-led attack on Iraq kept pressure on the market.

Two U.S. aircraft carrier battle groups, each with about 10,000 sailors and Marines, are within striking distance of Iraq. Two others were ordered last week to prepare for departure on 96 hours' notice, as were two amphibious warfare groups.

Oil exports from Venezuela, the world's fifth-largest oil producer, have plummeted to 340,000 barrels a day from 2.3 million barrels a day due to the nationwide strike.

Ali Rodriguez, president of the Venezuelan state oil monopoly Petroleos de Venezuela SA, said Venezuela is currently producing between 600,000 and 700,000 barrels a day. Striking oil executives say it is producing less than 200,000 barrels a day.

Prudential Financial analyst Andrew Rosenfeld said in a recent report that if the strike in Venezuela ended in early January, oil production and exports would not be fully restored until early February.

Natural gas for January delivery fell 22.2 cents to settle at $4.800 per 1,000 cubic feet.

Associated Press Writer Audrey Woods in London contributed to this report.