Oil Prices Fall as OPEC Blasts Rising Output

Oil prices dropped sharply Monday as the Organization of the Petroleum Exporting Countries leveled strong criticism at other states for boosting production.

In late trading on the New York Mercantile Exchange, July crude oil fell 69 cents to $18.15 a barrel, the lowest since March, after OPEC ministers meeting here slammed countries such as Britain and Norway for raising output to meet rising global demand.

“This issue demands our close scrutiny during this meeting,” Ida Bagus Sudjana, outgoing OPEC President and Indonesian oil minister, said as OPEC’s midyear conference got under way.

Venezuelan oil minister Erwin Jose Arrieta--the incoming OPEC president--said it was too early to discuss exactly what action OPEC might take on production quotas next year, but he did not rule out the possibility that OPEC might suspend output quotas altogether.

He later told reporters that the cartel would have to limit output as long as supply outstrips demand.

OPEC’s current production ceiling of 24.52 million barrels per day was set in September, 1993. It has not changed since in the hope that prices would strengthen.

But Monday’s price slide has returned the market to levels that prevailed a year ago, and OPEC is blaming North Sea oil producers. North Sea output should rise to more than 6 million barrels a day at the end of this year from 4 million two years ago.

Some analysts were taking Arrieta’s comments as a cue that prices could fall if OPEC raises production.

“Some people are reading between the lines there’ll be an increase [in quotas],” said Charles Gray, an analyst at Prudential-Bache.

But others dismissed such a move by OPEC. “There are no measures that OPEC can take which will affect non-OPEC countries,” said Geoff Pyne, analyst at Phillips & Drew.

Norwegian energy officials said their country has no plans to cut output now.

Britain also rejected calls from OPEC for an output restraint. “The British government doesn’t produce any oil. Companies produce oil, and the market sets the price,” a British Department of Trade and Industry spokesman said.

The cartel foresees a conflict as oil from competitors takes a larger share of growing world demand.

Oil demand has grown by 2 million barrels per day in the last two years, but most of that has been claimed by an extra 1.7 million barrels a day from producers outside OPEC.

“There has been an expansion of demand, but most of it has been taken by non-OPEC. Something has to be done,” OPEC Secretary-General Rilwani Lukman told reporters on Sunday.

A confidential OPEC report obtained by Reuters estimates that the group is pumping 300,000 barrels a day above the 24.52-million quota, which is scheduled to run until the end of the year. Some analysts say the above-quota figure is higher.