Opec studying plan to boost oil price band by a third

Saeed Shah
Wednesday 28 April 2004 00:00
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The head of Opec, the cartel of oil-producing countries, yesterday raised the prospect that the organisation's target band for oil prices could be raised by almost a third.

The head of Opec, the cartel of oil-producing countries, yesterday raised the prospect that the organisation's target band for oil prices could be raised by almost a third.

The move would be largely symbolic for now. The oil price has been consistently above the existing $22-28 a barrel target price band in recent times and it is forecast to remain so.

The president of Opec, Purnomo Yusgiantoro, said the cartel was studying whether to raise the target price band, which was set four years ago. Some countries want a higher price to compensate for the lower value of the dollar, the currency in which oil is priced internationally. Speaking in Indonesia to journalists, Mr Yusgiantoro said that some Opec members "think an increase in the price band won't hurt the world economy."

Mr Yusgiantoro, who is also Indonesia's oil minister, added that Opec "thinks oil at $32 to $34 a barrel is considered safe. Some members have asked for a new price band to take into account dollar depreciation and world inflation."

However, the Saudi oil minister, Ali al-Naimi, immediately moved to play down the likelihood of such a move. Saudi Arabia, the most powerful country in Opec as it is the world's biggest oil producer, made clear that it would oppose the idea. Some commentators detected pressure on the Saudis from the US to keep oil price inflation down.

Mr Al-Naimi said: "Saudi Arabia continues to be committed to OPEC's $22-28 price band. There are signs that worldwide inventories have begun to build but no one really knows for sure. I do not believe there is a fissure [within Opec]. There is dialogue. Opec in general is committed to the band," he said.

Stephen Lewis, the chief economist at Monument Securities, said "Opec has taken a small step in a very dangerous journey." He said the real threat lay with the possibility that Opec would abandon pricing in dollars altogether, in favour of another currency or a basket of currencies. That, he said, would have "devastating implications for the US and the global economy".

Manouchehr Takin, of the Centre for Global Energy Studies, said that the Saudis had always pursued a more "moderate" energy policy than some other Opec countries.

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