OPEC Cancels Plan to Boost Oil Production

The Organization of Petroleum Exporting Countries told members to cancel plans to raise output for a third time this year after crude oil prices lost more than 10% last month.

In a letter to other members, OPEC President Ali Rodriguez, who also is Venezuela’s oil minister, ordered the extra supply be canceled. Rodriguez on July 17 proposed the increase, as long as prices stayed above OPEC’s targets.

“I wrote to express my concern about inventories and also to tell members that there is no boost in production since the terms were not met,” Rodriguez told reporters.

The order reinforces expectations that the 11-nation group, which pumps 40% of the world’s oil, may delay raising official output quotas further until at least after their Sept. 10 meeting. Saudi Arabia, the world’s top oil producer, has indicated it will unilaterally raise production this month, refiners have said.

“Oil prices aren’t too high; they’re fair,” Venezuelan President Hugo Chavez said during a news conference. Chavez and Rodriguez start a tour of OPEC capitals Monday.

OPEC informally agreed in June to raise daily supply by 500,000 barrels, or 0.7% of world output, if the price of its oil index topped $28 for 20 consecutive working days.

“This defers any collective action by OPEC,” said Julian Lee, senior energy analyst at the Centre for Global Energy Studies in London, who said Saudi Arabia appears to be acting independently of its colleagues.

With the index above $28 from July 1, Rodriguez told members in a letter July 17 to prepare for an increase by the end of July. Yet the price later fell below $28, which oil ministers said canceled the plan.

OPEC’s oil-price benchmark last stood at $25.17, close to the $25-a-barrel level that Saudi Arabia and other OPEC members have targeted. It has fallen 17% from $30.49 at the beginning of July.

Tuesday, crude oil for September delivery rose 36 cents, or 1.3%, to $27.79 a barrel on the Nymex, rebounding from a two-month low.

Analysts speculate that Saudi Arabia will press ahead with a plan to pump extra oil in defiance of official quotas. July 3, the kingdom proposed raising daily supply by 500,000 barrels, although the move met resistance from other members.

“There seem to be indications Saudi Arabia will open the taps in August,” Lee said. “If they do, I expect the United Arab Emirates, and perhaps Kuwait, to join them.”

Among OPEC countries, only Saudi Arabia, Kuwait and the United Arab Emirates are able to pump more oil without delay, analysts said.