April crude falls $2.87 after output signal

`Beginning of the end of these sky-high prices,' one trader remarks

March 09, 2000|By BLOOMBERG NEWS

NEW YORK -- Crude oil plunged about 8 percent, the biggest decline in more than a year, after Iran and Saudi Arabia signaled that OPEC will produce more oil in a move traders said will send prices even lower in coming months.

OPEC's two largest producers pledged "adequate and timely oil supplies" a day after prices reached a nine-year high of $34.37 a barrel, triple what they were in December 1998.

Traders interpreted that to mean Iran had ended its opposition to an increase next month and that OPEC will boost output after an agreement on production limits expires March 31.

"It's the beginning of the end of these sky-high prices," said Michael Fitzpatrick, a trader at Fimat USA Inc. in New York. "Prices will still be volatile, and may take some time to come down, but there's light at the end of the tunnel."

Crude oil for April delivery fell $2.87, or 8.4 percent, to $31.26 a barrel on the New York Mercantile Exchange, the biggest loss since Dec. 17, 1998. Prices still are up 22 percent since the start of this year.

The year-long limits on production by the Organization of the Petroleum Exporting Countries and its allies were intended to trim 7 percent of daily world supply and to eliminate a glut that had driven oil prices to a 12-year low of around $10 in December 1998.

While producers are supplying less oil today than they did two years ago, they are making a lot more money. OPEC is more willing to raise output now because it doesn't expect prices to fall by much and it doesn't want to risk slowing global economic growth that fuels demand for oil, analysts said.

Developing nations could lose as much as 2 percentage points from their economic growth this year because of higher energy prices, with a lesser effect on the industrialized economies, some analysts predict.

Saudi Arabia and Iran said in a joint statement that rising oil prices aren't in the "long-term interests" of producers and that adequate supplies are needed to balance the market, Iran's official news service, IRNA reported. OPEC is to meet in Vienna March 27 to decide its production levels.

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