Oil Hits $104 As OPEC Rebuffs Bush

Oil prices reached a record close, surging above $104 after OPEC decided Wednesday to keep its production unchanged. The cartel ignored calls from President Bush to pump more oil into an ailing economy.

Chakib Khelil, OPEC’s president this year, said at a meeting in Vienna that the high price of oil was not due to a lack of supplies. Instead, he cited the “mismanagement of the U.S. economy.”

OPEC rebuffed its top consumer, arguing that the world was well supplied with oil and blaming financial speculators and mismanagement of the United States economy for the current high prices.

But the Organization of the Petroleum Exporting Countries was not completely oblivious to the political and economic impact of $100 oil. The sharp surge in prices recently has deterred the group’s ministers from cutting their production, a move they seriously contemplated a few weeks ago to offset a seasonal slowdown in global oil demand in the second quarter.

With the United States economy slowing down, oil prices have risen sharply as investors seek refuge in commodities like oil and other hard assets to offset the drop in the value of the dollar and hedge against inflation.

Oil futures settled at $104.52 a barrel on the New York Mercantile Exchange, up $5 on the day. The spike came after United States fuel inventories unexpectedly declined while tensions escalated between Venezuela, an OPEC member, and Colombia.

The close exceeded the inflation-adjusted record of $103.76 — $39.50 at the time — set in April 1980 during the second oil shock.

As prices have risen in recent years, relations between energy producers and their consumers have been increasingly acrimonious. Oil producers are seeking better terms for their dealings with foreign oil companies, and often restricting access to investments. OPEC ministers are also increasingly confident in their ability to prevent prices from falling below $80 a barrel.

As a sign of growing impatience with oil producers, President Bush said on Tuesday that it would be a “mistake” for OPEC not to increase supplies. As the oil group was meeting in Vienna, the president repeated his assault on Wednesday, saying it was “obvious” that demand was stripping supplies, and pushing up prices.

“America’s got to change its habits; we’ve got to get off oil,” President Bush said at a conference on renewable fuels. “Until we change our habits, there’s going to be more dependency on oil.”

Chakib Khelil, OPEC’s president this year, said the high price of oil was not due to a lack of supplies. Instead, he cited the “mismanagement of the U.S. economy” and blamed financial speculators for driving up prices.

“If the prices are high, definitely they are not due to a lack of crude,” Mr. Khelil said in Vienna. “They are due to what’s happening in the U.S.”

He added: “There is sufficient supply. There’s plenty of oil there.”

Most energy analysts agree there is no physical shortage of oil today. Commercial oil inventories are at relatively high level and that refiners are not lacking oil.

Ali al-Naimi, Saudi Arabia’s oil minister, said in Vienna that there was no need to increase supplies by “even one barrel of oil.” He said the reason behind today’s soaring oil prices was “tremendous speculation.”

“There are even those who buy futures and speculate that oil prices will reach more than $200 in 2013 and 2015,” Mr. Naimi said in Vienna. “The most important thing that OPEC and Saudi Arabia look at is the stability of market factors.”

Still, OPEC recognized the threat posed by a slowing economy on its business.

“In reviewing the prospects for the oil market, the conference highlighted the economic slowdown in the U.S.A., which, together with the deepening credit crisis in financial markets, is increasing the downside risks for world economic growth and, consequently, demand for crude oil,” OPEC said in its final statement.

The oil cartel, which is next scheduled to meet in September, indicated it might call for an emergency meeting before then to review the market situation in the spring.

Meanwhile, ExxonMobil, America’s top oil company, plans a significant increase in its capital spending on new oil and gas projects in coming years as costs increase across the industry and rising political constraints mean oil companies are finding it increasingly challenging to pump oil out of the ground.

The high price environment is making it more difficult for companies like Exxon to expand its production and replace reserves, while posing a threat to global growth at a time the United States economy is slowing.

“Clearly the persistent higher cost that everyone is facing is now making its way into the next trench of projects,” Rex Tillerson, the company’s chairman and chief executive, said at the company’s annual analyst meeting in New York. “The costs are a significant challenge for the industry as a whole and they are a challenge to us as well.”

Exxon said on Wednesday it would increase capital expenditures to $25 billion this year, up from $21 billion last year. Over the next five years, the company plans to spend as much as $30 billion a year, Mr. Tillerson said.

Last year, Exxon beat its own record for earnings, posting net income of $40.6 billion, up 3 percent from the previous year. But even as it takes in record profits, Exxon, like most major oil companies, is facing tightening business terms as oil-rich countries seek to grab a larger share of their oil revenue as prices rise.

ExxonMobil is engaged in a nasty dispute with Venezuela over the seizure of an oil field. The governments of Russia, Kazakhstan and Nigeria are all seeking to renegotiate oil contracts signed when oil prices were much lower than today.

In its final statement, OPEC expressed its support to Venezuela “in the exercise of its sovereign rights over its natural resources” in its dispute against Exxon.

But the oil producers also called for the parties to “resolve their dispute through good faith and amicable negotiations.”

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