OPEC Faults U.S. As Oil Hits New High

OPEC on Wednesday accused the U.S. of economic "mismanagement" it said is pushing oil prices to new record highs, rebuffing calls to boost output and laying the blame at the feet of the Bush administration.

Oil prices surged past $104 a barrel for the first time after the OPEC announcement and the release of a U.S. government report showing a surprise drop in crude oil stockpiles.

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 one day after President George Bush lashed out at the organization, warning Tuesday: "I think it's a mistake to have your biggest customers' economies slowing down as a result of higher energy prices."

White House spokesman Dana Perino said Wednesday that Mr. Bush was "disappointed" OPEC didn't do more to rein in prices, which some say are pushing the U.S. economy into recession.

Japan and other major industrialized nations have also urged OPEC - which supplies about 40 percent of world demand for crude - to bring more oil on the market to pull down prices.

OPEC, pointing to slackening demand in the second quarter, suggested that it will hold off to see what happens with supply and prices this spring.

"Why do we need to take any new measure if the health of the market that we follow for our policies is sound?" the pan-Arab newspaper Al Hayat quoted Saudi Oil Minister Ali Naimi as saying.

Naimi told reporters in Vienna that his country is pumping roughly 300,000 barrels a day over its quota and is selling every drop "day in, day out" - an upbeat assessment.

Analyst John Hall, of John Hall Associates in London, said OPEC probably should have added oil to the market as Bush had asked.

"But in this time of intense geopolitical tension, it would be difficult for Saudi (Arabia) or any other producer to acquiesce simply because President Bush had asked them to," he said. "In the short term, any true respite for the consumer is still out of reach."

Although OPEC opted not to intervene, it 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 Wednesday'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.

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 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."

"Crude oil prices are being strongly influenced by the weakness in the U.S. dollar, rising inflation and significant flow of funds into the commodities market," it said.

"We've seen people using oil more as a strategic commodity or an economic commodity where they buy it as a hedge against inflation," said Peter Beutel, president of Cameron Hanover, an energy-tracking firm.

"As long as the Fed is desperate to prevent there being a recession it looks like traders are going to continue buying oil and a number of other commodities, everything from wheat to cocoa to sugar to cotton to gold," Beutel told CBS News Radio.

Oil trader Ray Carbone concurred, telling CBS News correspondent Anthony Mason, "I think if the dollar keeps falling, I think oil becomes much more attractive to certain types of investors. And I think it will keep upward pressure on oil."

Beutel suggested that eventually, this same investment behavior could be effective in reversing the price trend for crude.

"People will probably come in and try to sell at the same time and that ultimately will give the consumer an advantage whenever this market does in fact turn around."

Analysts said they didn't expect any significant action Wednesday.

"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 per barrel range would be optimal.

But oil's only direction Wednesday was up.

Light, sweet crude for April delivery rose US$2.02 to US$101.54 a barrel in electronic trading on the New York Mercantile Exchange by the afternoon in Europe - amid growing expectations that it stood to climb even higher.

"There's an ongoing stampede to be a part of the crude oil rally," said Tim Evans, an analyst at Citigroup Inc., in New York.

Hall said OPEC was partly to blame for economic woes in the U.S. and elsewhere. "By helping the price to rise, they have fueled inflation and they're fueling recession," he said.

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.

Crude inventories are growing, including "a massive increase" in U.S. stocks, Schork said.

"It's certainly a comfortable supply situation," he said.

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.