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Posted on: Friday, June 4, 2004

OPEC boosts its ceiling by 8.5%

By Paul Blustein
Washington Post

Saudi oil fields such as this one in Jubail could see more activity now that OPEC has agreed to raise its production ceiling by 2 million barrels a day in July.

Associated Press

WASHINGTON — A double dose of news yesterday eased fears of petroleum shortages, causing oil and gasoline prices to continue their retreat from record highs.

The Organization of Petroleum Exporting Countries agreed to raise its output ceilings by 8.5 percent next month in a bid to keep the surge in energy costs from dampening the global economic expansion. Even more important, analysts said, were government figures indicating that U.S. gasoline demand was starting to fall in response to high retail prices.

Analysts said the announcement by OPEC, which came at a meeting in Beirut, was unlikely to have much immediate impact, in part because of persistent fears of terrorist attacks or other problems that might disrupt production during a period of extremely tight supply.

But after rising initially, market prices began to slide in response to Energy Department data released in mid-morning showing an unexpected rise in crude and gasoline inventories, which suggested that supply conditions are somewhat less taut than previously believed.

Futures prices for U.S. benchmark crude fell 68 cents to $39.28 a barrel in New York. That is about $3 a barrel lower than the peak reached on Tuesday. Gasoline futures for July delivery fell 4.69 cents, to $1.2354 a gallon, the lowest price for such a wholesale contract since April 28.

Bush administration officials, who have grown increasingly anxious in recent weeks about the political and economic fallout from high gas prices, voiced satisfaction that yesterday's news might signal some relief for motorists in the months ahead.

The Energy Information Administration, part of the U.S. Department of Energy, said in its weekly report that "several key indicators suggest that gasoline prices may continue to fall in coming weeks," perhaps below $2 a gallon before long.

The report emphasized, however, that consumers should not expect gas prices to fall back "any time soon" to the $1.48-a-gallon national average at the end of last year.

Analysts generally agreed that fundamental factors are likely to push prices lower, but they cautioned that terrorist attacks could drive prices sharply upward, as happened Tuesday in response to the killing of 22 foreign workers in Saudi Arabia's main oil-producing zone last weekend.

"You can expect a gradual softening in prices, but all the risks are on the upside," said Simon Wardell, senior energy analyst at the World Markets Research Center in London.

The announcement by OPEC fell somewhat short of market expectations. The 11-nation cartel said it will raise its quotas in July by 2 million barrels a day, to 25.5 million barrels, with a 500,000 barrel-a-day increase planned for August, if necessary. Total world demand is close to 80 million barrels a day.

"That decision is obviously helpful, even if it's only symbolic, because OPEC was already producing above its quota," said Robert Priddle, the former executive director of the International Energy Agency, an intergovernmental body based in Paris.