Sources: Saudi to increase production by 500,000 barrels

ASWAN, Egypt - Saudi Arabia intends to immediately increase the country's oil production by 500,000 barrels a day in an effort to reduce crude prices from their current $30-a-barrel level, officials said Monday.

An official from an OPEC delegation, who spoke on condition of anonymity, said the Saudis were acting because they were the only producers with enough reserves to increase production. He also said the Saudis would move to decrease production if prices fell below $25.

In Washington, a Saudi government official confirmed the country's intention to sell additional oil until prices fell. Speaking on condition of anonymity, the official said the government in Riyadh was expected to make an announcement.

It was unclear what impact such a move would have on gas prices, which are above $2 a gallon in some parts of the United States.

''I would expect gasoline prices to fall with crude oil prices, especially as we get close to Labor Day,'' said Chris Stavros, an energy analyst for Paine Webber in New York. ''Gasoline's very much the in-season product, so if demand remains pretty good for gasoline around the country, that could help support prices'' for much of the summer.''

Analysts were skeptical that Saudi Arabia would make such a move, which comes only weeks after the Organization of Petroleum Exporting Countries decided to increase exports by an additional 708,000 barrels a day.

''It sounds too desperate for the Saudis. They wouldn't want to be seen to act ... without some of the others coming along with them,'' said Leo Drollas, chief economist of the London-based Center for Global Energy Studies.

Saudi Arabia, the world's largest oil producer and exporter, had reportedly been trying to persuade other producers to raise exports above the increase agreed to at an OPEC meeting last month in Vienna.

Despite the increase, oil prices have not gone down.

Saudi Oil Minister Ali al-Naimi told his country's official news agency, in comments published Monday that the Saudis were seeking ''in any way we can to bring the prices down from their current level to the target level of $25 per barrel. ... If the price does not decrease, Saudi Arabia, in consultation with other producers, will increase production by 500,000 barrels a day within the next few days.''

The United States made clear it would welcome such a move.

''As we have said, greater supply at reasonable prices is in everyone's interest, but I'll defer to the Saudi government on whatever decision they've made,'' White House spokesman P.J. Crowley told reporters Monday.

Saudi Arabia has excess production capacity of 2.3 million barrels per day that can be put on the market in a short period of time if necessary, another OPEC official had said on condition of anonymity earlier this week. As of July the kingdom's quota is 8.25 million barrels per day.

Kuwait and the United Arab Emirates are the only other OPEC members with enough capacity to quickly produce and export significant additional amounts of crude.

In Caracas, Venezuelan oil minister and OPEC President Ali Rodriguez said he was unaware of any production increase by Saudi Arabia.

But he added that such decisions to put extra oil on the market should be made by OPEC as a group.

''To make a decision, it's (essential for the Saudis) to make the necessary consultations among OPEC members,'' he said.

The Saudi economy is 70 percent dependent on oil revenues. Saudi officials fear they will be hurt in the long run if prices remain high. They need stable prices to plan spending, and high prices could reduce demand and spur consumers to turn to alternative fuels.

Earlier Monday, a Qatari oil official said OPEC was considering a production increase of even more than 500,000 barrels a day if its basket price of crude sharply exceeds $28.

Previously, officials had said OPEC members were considering an increase of 500,000 barrels a day if the OPEC basket price topped $28 for 20 consecutive trading days.

On June 20, the OPEC basket price broke above $28 per barrel and has held above that level since in a range of between $28.97-$30.10, according to OPEC.

On the New York Mercantile Exchange, light, sweet crude for August delivery - which trades at roughly $2 higher than the OPEC crude basket - closed Friday at $32.50 a barrel. Trading was closed Monday for the Independence Day holiday weekend.

August contracts of North Sea Brent crude rallied by 53 cents from Friday's close to $31.10 per barrel in trading on the International Petroleum Exchange in London on Monday.

OPEC oil ministers are set to meet in Vienna Sept. 10. They had not been expected to take decisions on oil output before then. OPEC's official quota, not including Iraq, is 25.4 million barrels; it pumps about 35 percent of the world's oil.

OPEC members are Saudi Arabia, Iran, the United Arab Emirates, Kuwait, Qatar, Nigeria, Libya, Algeria, Venezuela and Indonesia. Iraq also is a member but has not participated in recent OPEC production pacts.


Associated Press Writer David Briscoe contributed to this story.


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