Jeddah: Top oil exporter Saudi Arabia is ready to pump more for the rest of the year to try to calm record prices even though the market has enough oil, the country’s oil minister Ali al-Naimi said on Sunday.
“I am convinced that the supply and demand balances and crude oil production levels are not the primary drivers of the current market situation and that markets are already well-supplied,” al-Naimi said. “But ... I also strongly believe that each of us must do what we can to alleviate these difficult conditions”.
Relief time: Delegates pose with Saudi Arabian officials at the Jeddah energy meeting. Saudi Arabia agreed to raise production by 550,000 bpd to 9.7 million bpd from July to counter rising global oil prices. It also said it could increase its production to 12.5 million bpd by the end of 2009.
His comments came at a meeting where the world’s top energy policy-makers are meeting for emergency talks on halting oil’s unrelenting rally. Riyadh summoned both producers and consumers, plus chief executives from big oil firms, to the meeting.
Oil has doubled in a year to almost $140 (Rs6,278) a barrel, driving inflation rates higher around the globe, sparking street protests from Asia to western Europe, and forcing the world’s major central banks to concede that they may have to start raising interest rates to curb rising consumer prices.
Saudi Arabia has already said it will produce 9.7 million barrels per day (bpd) in July, marking an increase in output of 550,000 bpd since May. Al-Naimi said the kingdom would pump at or above that level for the rest of the year if there was demand from its customers.
“For the remainder of this year, Saudi Arabia is prepared and willing to produce additional barrels of crude oil above and beyond the 9.7 million bpd which we plan to produce during the month of July,” al-Naimi said.
For the longer term, al-Naimi said Saudi Arabia could increase its available capacity by an extra 2.5 million bpd above a current plan to reach 12.5 million bpd by the end of next year.
“We have identified a series of future crude oil mega-increments totalling another 2.5 million barrels per day of capacity that could be built if and when crude oil demand warrant their development,” al-Naimi said.
Al-Naimi said the record oil price was driven by factors other than supply and demand. “A simplistic focus on supply expansion is therefore unlikely to tame the current price behaviour,” he said.
Apart from the short-term supply-demand balance, investors have bought into futures markets because they believe oil supplies will be under strain for the foreseeable future.
India’s finance minister P. Chidambaram also echoed the same views.
The near doubling of oil prices was driven by speculators, not an increase in demand, Chidambaram told energy ministers attending the meeting, according to speech notes emailed from his ministry.
Producers and consumers should “wrest control” of trading in the oil by agreeing to restrict prices, he said.
“Surely demand and supply cannot explain what has happened over the last 12 months,” Chidambaram said. “Oil prices were $70 a barrel in August 2007 and how is it that they’ve doubled when there has been no dramatic change in demand?”
Oil prices surged as financial institutions invested in the commodity through “unregulated and highly opaque” transactions, he said.
US energy secretary Samuel Bodman rejected on Saturday calls to put greater control on the markets, and said a shortage of supply was responsible for pushing oil prices higher. He rejected the argument that speculators are leading the markets to record levels.
The market needs between 3 million and 4 million barrels a day of spare oil production capacity, compared with the 2 million barrels a day available, he said. The International Energy Agency estimates that world oil use this year will climb 800,000 barrels a day, or 1%, as demand increases in emerging markets.
Saudi Arabia is also expected to make efforts to coax its few Organization of the Petroleum Exporting Countries (Opec) peers who have spare production capacity to join the kingdom in pumping more barrels. But this meeting may not provide any concrete solutions, say some market experts.
“I think it’s going to be virtually impossible to find a set of solutions at a meeting like this that will ease high prices in the short term,” Raad Alkadiri, senior director for country strategies at US-based consultants PFC Energy.
“This is about market sentiment, and this meeting is probably not enough to change the market sentiment, which is clearly bullish. There clearly is no silver bullet.”
Recent efforts to slow the ascent have had little impact.
Before the meeting, an Opec delegate had said it was not yet clear whether they would join in any output rise, while members such as Libya and Algeria have said the cartel, which pumps a third of the world’s oil, should not be putting more crude on the market.
Kuwait oil minister Mohammad al-Olaim said his country would “not hesitate” to boost output if it saw the need, but a day earlier he said it was too early to talk of an increase.
Meanwhile, Saudi Arabia’s King Abdullah proposed setting up a $1 billion Opec fund and offered $500 million in Saudi soft loans to help poor countries cope with the high price of energy.
He said Saudi Arabia was willing to provide all necessary oil supplies needed in future and blamed high oil prices on speculation and taxes. He called for the World Bank to arrange an international meeting to discuss the poor-country initiative.
Oil minister al-Naimi said Saudi Arabia would invest $129 billion in the energy sector in the next five years, spanning the upstream and downstream sectors both at home and abroad.
Bloomberg also contributed to this story.