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Oil soars to record, dollar hits low after OPEC accuses U.S. of 'mismanagement'

By William J. Kole
The Associated Press

06/03/08 -- - VIENNA, Austria  05/03/08 --  OPEC said today it will not put more oil on the global market despite record-high prices for crude, blaming the U.S. for economic "mismanagement" that it said was having a worldwide effect.

Oil soared past $104 for the first time after the OPEC announcement and the release of a government report showing a surprise drop in crude-oil stockpiles.

Light, sweet crude for April delivery jumped $5 to settle at a record $104.52 a barrel on the New York Mercantile Exchange after earlier rising to $104.64, a new trading record. Earlier this week, oil prices broke the previous inflation-adjusted price record of $103.76, set in 1980 during the Iran hostage crisis.

The U.S. dollar sunk to record lows today, with the euro fetching $1.53 for the first time ever in Europe.

The 13-nation Organization of Petroleum Exporting Countries said it would maintain current production levels because crude supplies are plentiful and demand is expected to weaken in the second quarter.

OPEC President Chakib Khelil told reporters the global market is being affected by what he called "the mismanagement of the U.S. economy," and that America's problems were a key factor in the cartel's decision to hold off on any action.

"If the prices are high, definitely they are not due to a lack of crude. They are due to what's happening in the U.S.," Khelil said. "There is sufficient supply. There's plenty of oil there."

Khelil's comments came a day after President Bush lashed out at the organization.

OPEC did pledge to maintain "constant vigilance" over the market.

Khelil said he and OPEC's secretary-general were authorized to call an extraordinary meeting or hold phone consultations "at any time, depending on the pressures on the market" — an apparent gesture to ease global economic jitters.

There had been some speculation that OPEC might actually cut production — a move that would drive prices even higher, along with profits for cartel members — but Khelil said a cut was not discussed at today's meeting. He said OPEC had no plans to meet again before its next scheduled conference in September.

Earlier in the week, price hawks Venezuela and Iran had indicated they planned to push for less production.

On Tuesday, OPEC was rebuked by Bush. "Understand the consequences of high energy prices," Bush said after meeting with King Abdullah II of Jordan in the Oval Office. "I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices," he added.

Khelil said crude stocks were well within their five-year average and the 13-nation group was not inclined to either boost or reduce its current output of about 32 million barrels a day. OPEC satisfies roughly 40 percent of the world's demand for crude.

OPEC said it "highlighted the economic slowdown in the U.S., 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."

Analysts had not expected any significant action today.

"In truth, OPEC's decision not to pump more oil is a reflection that supply is relatively good," said Anthony Sabino, a professor of business at St. John's University in New York.

"What is driving oil prices up to the stratospheric level of over $100 per barrel is the U.S. economy, now undeniably in recession," he said. "It's not so much the price of oil is going up — it's that the value of the U.S. dollar, sad to say, is slumping."

Oil shot up a dramatic 19 percent last month as the falling dollar prompted speculators and other investors to shift cash to crude and other commodities as a hedge.

Among other reasons for the spike: tensions in the oil-rich Middle East and Turkey's incursion into northern Iraq.

Key cartel members said this week that prices in the $85 to $90 a barrel range would be optimal.

"The market listens to what they say. So when they do nothing, in the short-term there are still fears," said John Hall, of John Hall Associates in London.

OPEC, Hall said, is "very, very nervous at the moment. By helping the price to rise, they have fueled inflation and they're fueling recession."

But Stephen Schork, editor of The Schork Report, which keeps tabs on global energy markets and trends, said the cartel may not have had much choice.

"If you're OPEC, you see ample supplies and questionable demand," he said.

Schork gave OPEC credit for not pushing through a cut in output, which "would legitimize the bullish speculation we've seen since February" and risk sending oil to $120 a barrel or higher.

The 13 OPEC members are Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. Iraq is the only member not subject to the cartel's output quotas.

Copyright 2008 The Seattle Times Company

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