Video: No relief

updated 5/17/2004 3:15:51 PM ET 2004-05-17T19:15:51

Oil prices surged close to $42 a barrel Monday, a new record high, as markets shrugged off a Saudi proposal that OPEC raise its official output target by 6 percent.

Analysts argued that the Organization of Petroleum Exporting Countries must do more — by adding real barrels to world supplies — if it expects to curb the relentless rise in crude prices.

A senior OPEC delegate, speaking on condition of anonymity, said the group was so worried about overheated prices that it might consider making a larger increase in its target than Saudi Arabia initially suggested last week.

OPEC plans to meet for emergency talks this weekend in Amsterdam to discuss a possible target increase of 1.5 million barrels. Because OPEC already exceeds its current target by more than this amount, analysts say such a move would only legitimize some of OPEC’s overproduction and do nothing to trim prices.

“It’s not that it won’t be enough. It’s irrelevant,” said Leo Drollas, chief economist of the Center for Global Energy Studies in London.

The oil pipelineFutures contracts of U.S. light crude for June delivery reached $41.85 a barrel in New York before retreating somewhat to close at $41.55. July contracts of North Sea Brent reached $38.50 a barrel, and closed at 37.91.

Pressure is building on OPEC to dip into some of its spare production capacity and boost actual output — not just its target. Markets are stretched by unexpectedly strong demand and spooked by turmoil in Iraq and uncertainty elsewhere in the oil-rich Middle East.

The assassination Monday of the head of the Iraqi Governing Council underscored the political instability in that country, which has the second-largest proven crude reserves after Saudi Arabia. Izzadine Saleem was the second and highest-ranking member of the U.S.-appointed council to be assassinated.

The senior OPEC delegate said representatives at the group’s upcoming meeting might consider raising their target by more than 6 percent.

“There’s no fixed position in terms of numbers,” the delegate said.

Most OPEC members are cashing in on current high prices by pumping an estimated 2 million barrels above their target of 23.5 million barrels. However, if prices stay high, they could damage economic growth and weaken demand for crude. High prices also encourage non-OPEC producers such as Russia and Mexico to pump more oil of their own, worsening the risk that prices may collapse.

“We are very worried and very concerned about the situation in the oil market, and we know we will do what we have to to bring back stability,” the OPEC delegate said.

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