US light crude crossed US$56 in New York, as a reaction to a sudden and unexpected fall in US petrol stocks. In London the Brent futures contract showed record gains at almost a dollar per barrel to US$54.75. Opec ministers agreed to raise output to 27.5 million bpd at the meeting in Iran yesterday, as they rallied behind a Saudi call for a 500,000 bpd increase in the production ceiling. However, this 2% increase in oil supplies failed to dampen the oil market's concern about ever-rising demand.
Saudi Arabia, the world's largest oil exporter, has also expressed that an acceptable price band is between US$40-US$50 per barrel, a level almost double the Opec cartel's previous price target band between US$22 and US$28. Opec adopted a price band mechanism in 2000 in an attempt to restore discipline and avoid internal dissent and rivalry. The US$22-28/barrel price range included a mechanism whereby the cartel would increase or reduce supplies after prolonged periods when prices exceeded or fell below the price band.
Last year's oil price surge to US$50/barrel led to a suspension of the price band and Saudi Arabia's statement is the first indication of its preferred level of price support. A continuing fall in the US dollar has raised financial pressures on Saudi Arabia. The kingdom needs an oil price of about US$42 to meet expenses and reduce its huge debt.
17-Mar-05 
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