OPEC Says Members Won't Pump More Oil
As Crude Price Sets Record, Cartel's Intent Is Questioned

By Steven Mufson
Washington Post Staff Writer
Thursday, March 6, 2008; D01

The Organization of the Petroleum Exporting Countries yesterday decided to leave production unchanged despite the high cost of crude oil, contributing to a $5-a-barrel leap to a new record price and drawing a rebuke from a "disappointed" White House.

Saudi Oil Minister Ali al-Naimi said OPEC would also try to keep stockpiles near their five-year average, a level many analysts think may be too low for comfort in a world of rising oil demand.

Though OPEC's production decision was widely expected, Naimi's comments and the wording of the group's communique added to concern that OPEC is more worried about pumping too much oil for weakening economies than it is about the possible harm that high oil prices might do to those economies.

In its statement after the meeting in Vienna, OPEC pointed to "the economic slowdown in the U.S.A., which, together with the deepening credit crisis in financial markets, is increasing the downside risks for world economic growth and, consequently, demand for crude oil." The cartel, which produces nearly 40 percent of the world's petroleum, added that "the market is well-supplied, with current commercial oil stocks standing above their five-year average."

Yesterday's jump in the price of crude oil, to $104.52 a barrel on the New York Mercantile Exchange, was also influenced by the continued weakening of the U.S. dollar against the euro and the influx of investors seeking protection from inflation through bigger stakes in commodities. Prices of gold, copper, corn and natural gas also rose yesterday, though not as sharply.

"This is not oil market fundamentals out here, folks. There's more going on," said Frank A. Verrastro, director of the energy program at the Center for Strategic and International Studies.

OPEC's decision and Naimi's comments provided new fuel for the debate over the level of world oil inventories. Over the past year, OPEC has achieved its goal of shrinking world inventories from 120 million barrels above the five-year average to slightly below the five-year average, Verrastro said.

But with much of the inventories in government strategic stockpiles, and with oil demand growing rapidly in the Middle East and China, many analysts think that OPEC's position might leave companies short of oil in a weather or political crisis and that low inventories might be propping up prices.

OPEC blames hedge funds and speculators for high prices. In the past year, the price for a basket of different grades of OPEC crude has increased to $96.78 a barrel, from $58.59, according to the OPEC Web site.

"They see speculation in the market, I see a decline in global inventories," Energy Secretary Samuel W. Bodman said in an interview with Bloomberg Television yesterday.

White House press secretary Dana Perino said President Bush "would have liked OPEC to have made a different decision. He is disappointed that they decided not to increase production."

The Energy Information Administration reported this week that the average retail price for home heating oil in the United States reached a record $3.55 a gallon, up $1.08 in the past year.

Also yesterday, Exxon Mobil told analysts in New York that the company would increase capital spending by more than 20 percent this year, to more than $25 billion, to cover rising costs for engineering and drilling. Exxon Mobil chief executive Rex W. Tillerson said the company will spend $125 billion over the next five years to find and develop new reserves.

Analysts noted that last year, Exxon Mobil production fell 2.4 percent and that the company failed to replace 24 percent of the petroleum it pumped. Though the company has a huge capital budget, it has spent more on stock buybacks in recent years.

Other major oil companies have also announced plans recently to increase capital spending.