Oil market in disarray as Saudis defy Opec to increase output

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The Independent Online

The oil market was thrown into fresh disarray yesterday after it emerged that Saudi Arabia had raised output in defiance of a ruling by Opec that no increase was needed.

The oil market was thrown into fresh disarray yesterday after it emerged that Saudi Arabia had raised output in defiance of a ruling by Opec that no increase was needed.

Industry sources said the kingdom was pumping an extra 250,000 barrels a day into the market and would add another 250,000 from next month.

The move would fulfil the Saudis' pledge, made by the oil minister, Ali al-Naimi, on 3 July, to add 500,000 barrels a day to world supply. But it comes just a day after Ali Rodriguez, president of the producers' cartel Opec, said prices had fallen far enough to avoid the need for an increase. That news sent the oil price rising sharply in early trading yesterday.

After the Saudis announced their 3 July plan, Opec agreed to sanction a 500,000-barrel increase as long as the cartel's index of the oil price stayed above $28 over a period of 20 working days, ending on 28 July. But, on Monday, the price fell below the threshold.

In London, Brent crude for September delivery rose 1 per cent to $29.33 following Mr Rodriguez' announcement that the output plan had been shelved.

But the price fell by the same amount after it emerged that the Saudis had broken ranks with Opec.

Under Opec's conditional deal to increase output, the Saudis would only have been allowed to pump an extra 162,000 barrels a day, with the rest being shared between the other 10 cartel members.

Opec's Vienna-based secretariat said yesterday that the basket price returned to $28.09 on Tuesday, which, according to the mechanism agreement, would again set the 20-day clock ticking.

Analysts said it was still possible that Opec may intervene before the deadline.

"The jury is out," said John Russel, managing director of Bangkok-based Petroleum Economics Limited. "But if prices remain at around $28 over the next couple of weeks, we are likely to see Opec raising output, irrespective of whether they move below $28 for a day or not."

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