Oil sails higher, U.S., EU, OPEC meeting urged

Oil sails higher, U.S., EU, OPEC meeting urged

LONDON (Reuters): Oil prices vaulted to another 10-year high on Wednesday prompting the International Monetary Fund to warn that rising fuel costs are casting a shadow over the global economic outlook.

France said it would propose to this weekend's meeting of the Group of Seven finance ministers immediate talks between representatives of the United States, the European Union and the OPEC.

Bolstered by fresh data showing no sign yet of any upturn in lowly U.S. petroleum inventories, oil dealers sent New York crude futures racing to the highest level since Iraq's invasion of Kuwait in 1990.

U.S. light crude for October in electronic trade gained 77 cents to $37.28 a barrel. London Brent for November was up 87 cents a barrel at $34.50.

Dealers cited weekly American Petroleum Institute data, released late on Tuesday, as the latest factor spurring prices higher.

The API industry group said U.S. crude fell almost two million barrels in the week to September 15 to 287 million barrels or -- 22 million below year-ago levels.

Worse still for those worried about fuel shortages this winter in the world's biggest petroleum importing nation, heating oil and diesel stocks showed little change.

The API said those inventories rose a modest 1.25 million barrels to just over 116 million to remain 28 million barrels or 24 percent lower than at the same time last year.

"The market will take (the API figures) in stride and go along its merry bullish way," said Tom Knight with Internet energy trading company Redmeteor.com. "This is like giving a drunk another drink."

French Finance Minister Laurent Fabius said on Wednesday he would air his proposal for talks with the Organization of the Petroleum Exporting Countries when G7 finance ministers meet in Prague on Saturday.

He said the idea would be for an informal gathering between the U.S. and the European Union with OPEC before a summit of heads-of-state of OPEC leaders in Caracas.

The timing of the summit, starting next Tuesday, would appear to make such an early meeting unlikely.

OPEC says it is hoping that its latest 800,000 barrel a day (bpd) output increase will be enough to calm prices and boost crude inventories in the West. "We have increased production by over 3.2 million bpd in six months. That's a lot of oil to put in the market in such a short time and should do the job," OPEC Secretary General Rilwanu Lukman said in Jakarta on Wednesday.

Lukman says the cartel can add more oil if necessary under a price stability mechanism that could bring an extra 500,000 bpd by the end of October.

"If prices remain high, we don't need a meeting, we won't wait for a meeting. We'll act," Lukman said.

But OPEC admits there are factors outside its control that are sustaining high prices.

OPEC President and Venezuelan Oil Minister Ali Rodriguez said on Tuesday that market speculation had added $8 to the value of a barrel of crude over and above fundamental factors.

Rodriguez said oil at $40 a barrel could prompt "emergency" measures by OPEC, which controls 60 percent of global petroleum exports.

"The oil markets are not yet in an emergency situation, but they could become so," he said.

"If prices reach $40, it would without doubt be a delicate situation. If it is permanent, then it would be an emergency."

Since most in OPEC already are pumping to capacity, any significant extra crude would have to come from leading producer Saudi Arabia.

OPEC blames high prices on U.S. refinery bottlenecks, market speculation and high consumer government taxes.

Oil's relentless rise has attracted renewed calls for the United States to dip into its huge national petroleum inventory.

U.S. President Bill Clinton said on Tuesday he wanted "a few more days" to assess market reaction to OPEC's latest output hike before deciding whether to take the rare step of using the 571- million-barrel Strategic Petroleum Reserve.

Oil from the reserve has only been used once before -- during the 1990-1991 Gulf crisis when Iraqi and Kuwait exports were suspended.