Saudi Arabia is leading the Organisation of Petroleum Exporting Countries (Opec) to lower prices and pump more oil to compensate for the loss of crude production from the Gulf of Mexico after Hurricane Katrina.
The kingdom, the world's largest oil producer, widened on Monday the discount at which it sells its oil to US and European refineries to a six-month high.
The decision, which represents a U-turn from recent Saudi policy, would encourage demand for the kingdom's oil and could be followed by other Gulf producers, Opec officials and oil traders said.
The move comes ahead of an Opec meeting in two weeks and after the US lost 20 per cent of its oil production and 10 per cent of its refinery capacity.
US oil production in the Gulf of Mexico recovered on Monday to 69.6 per cent of the pre-Katrina level of 1.5 million barrels a day, but fell back yesterday to 58 per cent. At the peak of the hurricane disruption, output was 95 per cent down.
In addition, four of the eight refineries hit by the storm were restarting yesterday.
However, three other large refineries owned by ExxonMobil, ConocoPhillips and Chevron, which have a capacity of 750,000 bpd - about 5 per cent of the US total - are still flooded.
"For these plants water damage, particularly in facility control rooms, seems to be the most important obstacle to a restart. Lack of communication from the companies suggests extensive downtime," said Paul Sankey, of Deutsche Bank in New York. "In the past it has taken plants up to eight months to return to full operations," he added.
US oil prices fell yesterday by $1.50 to $66 a barrel as the market reacted to the release of the industrial countries' emergency stocks, but analysts said the refinery problems would keep prices high.
