World oil prices fell from 21-year highs on Friday as Saudi Arabia proposed hiking crude output by over two million barrels per day and said it had already substantially boosted supplies in a bid to cool markets.
Traders said oil markets were nervous ahead of an informal weekend meeting of Opec ministers and this had helped to push US prices below $40 a barrel for the first time in days.
US light crude fell over a dollar to as low as $39.65 a barrel. On Monday, it struck a 21-year peak of $41.85. London Brent crude futures were trading down 73 cents to $36.53.
Saudi Arabia, Opec's largest producer and the only one with substantial spare production capacity, proposed that the cartel boost its oil output by more than two million bpd.
"The recent increase in oil demand and supply projections for the coming months point to an increase in required production from Opec by an excess of two million bpd," Saudi Oil Minister Ali al-Naimi said in a statement.
Naimi said Saudi Arabia had already allocated its customers more than nine million bpd crude for June. This is far in excess of the kingdom's official quota of 7.63 million bpd.
An Opec delegate also soothed fears that the cartel, which is pumping well in excess of quotas, has little spare capacity, saying Saudi Arabia could produce 10.5 million bpd if needed.
But Opec ministers as well as analysts say the cartel will probably have limited power this time to influence prices because the spike is not due to a shortage of crude supply.
Consultancy Petrologistics said on Friday Opec was already pumping 2.8 million bpd above quota in May, with little impact on the oil price. Besides, most Opec crude is of the heavy, sour variety, while refineries require light gasoline-rich grades.
"I don't think that control is in Opec's hands," UAE Oil Minister Obaid al-Nasseri said. "There are many factors behind these prices."
John Waterlow, analyst at WoodMacKenzie in Edinburgh said speculative buying, fear of supply disruptions in the Middle East and shortages of gasoline were helping drive prices.
"An unequivocal signal from Opec could help calm the markets a bit but there are all sorts of other issues influencing the price this time," Waterlow said.
"We also have to bear in mind that the peak season for gasoline demand in the United States is yet to come and there is no sign of any immediate relief to that problem," he added. Opec delegates said any formal decision on hiking crude supply would be taken at the cartel's official June 3 meeting and not at this weekend's gathering in Amsterdam.
Crude prices have risen almost 30 percent since the start of this year while gasoline prices are up 50 percent. Gasoline is especially in focus because the US high-demand driving season starts in two weeks with fuel stocks far under year-ago levels.
The prices have put Opec under pressure from consuming nations, which fear that tearaway oil prices could derail world economic growth. US Energy Secretary Spencer Abraham is likely to be one of many world officials who ask Opec for more oil at the upcoming summit of energy producers and consumers.
"We are hopeful that Secretary Abraham can get a commitment from Opec to raise production immediately," a group of US lawmakers said in a letter to President George W. Bush.
German Economy Minister Wolfgang Clement told reporters in Berlin: "It's a great risk. Nobody wins when the very positive development of the global economy is put at risk".
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