OPEC: Price spike beyond its control

LONDON -- World oil prices held near record highs yesterday as OPEC's top official said producers were powerless to manage a spike driven by factors outside its control.

US crude futures settled at $40.92 a barrel, down 58 cents but inside a dollar of the $41.85 recored high in the 21-year history of on the New York Mercantile Exchange. London Brent fell 64 cents to $37.26.

Crude rebounded strongly Wednesday from a brief reversal that raised hopes among consumer nations that the worst might be over for an oil price scare threatening to blunt global economic growth.

The Organization of the Petroleum Exporting Countries will hold informal talks in Amsterdam tomorrow to discuss a Saudi proposal to raise production quotas by at least 6 percent, or 1.5 million barrels daily.

Struggling to cope with growth in fuel demand driven by world economic expansion, OPEC says it can do little to douse prices now up more than 25 percent this year.

Cartel president Purnomo Yusgiantoro of Indonesia blamed hedge fund speculators, who have bet heavily on oil markets this year, and refinery bottlenecks in the United States.

''While the oil market still holds above $40 a barrel . . . that is due to factors beyond OPEC's scope," Purnomo said at a press conference in London. ''It is not an upstream problem."

Analysts agree that low stocks of gasoline in the United States ahead of peak summer demand are leading prices now.

But they say OPEC has helped create the conditions for an overheated market by restraining supplies so tightly that crude stocks are failing to rebuild as normal during the second quarter, the seasonal lowpoint for demand.

The Group of Seven finance ministers are expected to express concern to OPEC over oil prices when they meet this weekend, according to the finance ministers of Britain, France, and Germany.

In the United States, gasoline inventories rose slightly in the week to May 14 but remain four million barrels lower than a year ago, a substantial deficit when demand is running 3 percent higher year-on-year.

''There is a short-run situation that is very much associated with the problems of the US gasoline market; problems that OPEC can do very little about," said Paul Horsnell of Barclays Capital. ''The US gasoline inventory situation remains highly precarious."

US gasoline futures traded yesterday at a new record of $1.47 a gallon.

Dealers expect OPEC to use tomorrow's Amsterdam talks, taking place on the sidelines of a meeting between oil producing and consuming nations, to try to talk down prices.

But a firm decision on output is not expected until a full OPEC meeting in Beirut on June 3.

US Energy Secretary Spencer Abraham said yesterday he plans to discuss ways of cooling prices with OPEC members at the Amsterdam meeting, but added that more US refining capacity needs to be added to meet growing demand.

OPEC is struggling to convince traders that lifting output quotas by 1.5 million barrels per day will make a difference to prices. World crude consumption is forecast to pick up sharply, peaking in the fourth quarter when incremental winter demand is normally met by drawing down inventories.

''If markets are this nervous about supply when global demand is at a low, the prospects look fairly grim for when oil demand moves toward its seasonal high," said Horsnell at Barclays Capital.