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The New York Times: Oil Price Drops Sharply as Global Agency Sees Demand Easing

Published: November 14, 2007

RIYADH, Saudi Arabia, Nov. 13 — The price of crude oil dropped sharply on Tuesday after a prominent energy group lowered its estimate for worldwide oil demand, saying high prices were harming consumption.

Oil fell $3.45, or 3.7 percent, to $91.17 a barrel in New York. Last week, oil futures reached a high of $98.62 a barrel. Oil prices, which have more than quadrupled over the last four years, are close to the inflation-adjusted record of $101.70 a barrel reached in April 1980.

With an editorial titled “$100, a turning point?,” the International Energy Agency suggested in its monthly report on Tuesday that high prices were changing energy use in the developing world and in developed countries.

Despite reducing its consumption forecast by half a million barrels a day, the agency still expects oil demand to grow by 1.2 percent this year and 2.3 percent next year.

Still, the lowered outlook pushed oil prices down. The oil markets were also responding to comments by Saudi Arabia’s oil minister, Ali al-Naimi, who signaled over the weekend that OPEC might consider increasing its production to stem the rise in prices.

But Mr. Naimi quickly ruled out an imminent policy decision by the oil cartel as Saudi Arabia plays host to the summit meeting of OPEC heads of states this weekend. The leaders are expected to discuss the security of global oil supplies.

The prospect of oil at $100 a barrel seems to have receded, for the moment.

The drop in prices was welcomed in Riyadh, where the issue threatened to overshadow the summit meeting. But the question of oil prices remains a particularly sensitive one, especially for Saudi Arabia, the top oil exporter. The kingdom holds a quarter of the world’s proven oil reserves.

During a news conference on Tuesday, Mr. Naimi carefully avoided drawing any conclusions linking the current high prices and a potential slowdown in consumption. He stressed several times that he believed that oil prices were set by free markets, not oil producers. Typically, he would not be drawn into talking about specific price levels.

“We are not really interested in prices that negatively impact economic growth or cause less prosperity,” Mr. Naimi said. “The price needs to be fair to many players. That’s the difficult formula, to say what the price will be.”

He added, “The fundamentals have nothing to do with prices.”

After his earlier comments helped deflate the market, Mr. Naimi said OPEC’s oil ministers would not discuss production levels this week. But he left the door open to a new increase in OPEC’s cumulative output when the group meets in Abu Dhabi, the capital of the United Arab Emirates, on Dec. 5.

After its last meeting, in September, OPEC decided to increase oil production by 500,000 barrels a day, a modest increase of 2 percent in the group’s total output. The measure, which became effective Nov. 1, did not curb prices.

The stunning rise in energy prices, spurred by an increasingly volatile and unpredictable market, has happened despite warnings about the health of the American economy. Last week, Ben S. Bernanke, the Federal Reserve chairman, said the United States was headed for slower growth because of oil prices, among other things. The message prompted a sell-off on Wall Street and stoked new fears of a possible recession.

Asked whether he was concerned that a slowdown could reduce demand for oil in the United States, Mr. Naimi said: “We do not wish any country to go into a recession, particularly the biggest consumer in the world. We hope it doesn’t happen, and we’re not planning on that happening.”

Mr. Naimi said Saudi Arabia was pumping 9 million barrels a day and had increased its production capacity to 11.3 million barrels. He expects another 500,000 barrels of additional capacity within the next three months. Saudi Arabia, he said, is on track to raise its total production capacity to 12.5 million barrels a day by 2009.

The OPEC summit meeting, which will include the leaders of Iran, Venezuela and Nigeria, will be held here on Saturday and Sunday. It will be preceded by a two-day conference on energy and environmental challenges for OPEC.

Saudi Arabia and other oil producers have invested tens of billions of dollars to improve their ability to pump more oil on the assumption that demand will keep rising, especially in Asia.

But at current prices, consumers are feeling the pinch and governments are becoming concerned about the weight of energy costs on economic growth, according to the energy agency. Over time, prices are changing the attitudes of consumers in developed countries.

“The cumulative $70 rise in price since 2002 is, we believe, having a cumulative effect,” the report said. “Ultimately, whether $100 oil proves a turning point in consumer and government thinking toward energy efficiency is more significant than its direct impact on oil demand growth.” and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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