Video: Saudis announce bump in oil production

updated 6/22/2008 8:05:17 PM ET 2008-06-23T00:05:17

Saudi Arabia blamed speculators. The United States pushed for more production. A meeting Sunday designed to find ways to calm soaring oil prices instead highlighted the sharp disagreements over what has caused the spike.

For consumers struggling to cope worldwide, that could mean little relief, at least immediately.

Saudi Arabia said Sunday it will produce more crude oil this year if the market needs it. But the vague pledge, at a rare meeting called by the Saudis, fell far short of U.S. hopes for a firm commitment of more output from the world’s top crude exporter.

Some oil analysts were immediately dismissive, predicting prices would go higher because the market had hoped for a bolder move from Saudi Arabia. U.S. officials were cautious but saw no breakthrough.

“It will go down a little bit. It won’t be significant,” said New Mexico Gov. Bill Richardson, a Democrat who was Energy Secretary under former President Bill Clinton, speaking on CNN’s “Late Edition.”

Current Energy Secretary Samuel Bodman said he hoped the meeting would “help foster stable markets and reasonable prices.”

Oil closed near $135 a barrel on Friday — almost double the price a year ago.

The U.S. and other nations argue that oil production has not kept up with increasing demand, especially from China, India and the Middle East. But Saudi Arabia and other OPEC countries say there is no shortage of oil and instead blame financial speculation and the falling U.S. dollar.

Saudi Oil Minister Ali al-Naimi said the kingdom is willing to produce more than the 9.7 million barrels of oil a day it had already planned to produce in July — if the market requires it.

But the Saudi oil minister also blamed speculators and asserted supply is not the problem.

“In today’s environment, I am convinced that supply and demand balances and crude oil production levels are not the primary drivers of the current market situation,” al-Naimi said. Officials and energy executives from more than 35 countries thronged a large hall where he spoke.

King Abdullah also said Saudi Arabia is not the culprit.

The king cited several factors driving “the unjustified, swift rise in oil prices” including “speculators who play the market out of selfish interests,” plus higher consumption by developing countries and higher taxes in some countries.

Bodman, however, said earlier that U.S. officials had found no evidence speculators are driving up prices.

Saudi officials have consistently said the country would provide enough oil to supply the market. The kingdom announced a 300,000 barrel per day production increase in May and said before the start of the Jiddah meeting that it would add another 200,000 barrels per day in July, raising total daily output to 9.7 million barrels.

Both announcements had already been factored into oil prices before Sunday’s meeting — and neither did much to stem their rise. Total worldwide crude production is about 85 million barrels per day.

It remained unclear if the Sunday announcements would have any greater effect.

At least one analyst said he thought they would only spur prices higher.

The oil market has been in a holding pattern to see if Saudi Arabia would take more aggressive steps toward boosting output, said Stephen Schork, an oil market analyst and trader in Villanova, Pa. The market’s likely to view the announcement as a sign it will not, he said.

“We don’t know anything more today that we didn’t know Friday,” said Schork, who predicted “$150 (a barrel) here we come.”

Linda Rafield, senior oil analyst at energy trade publication Platts, said she expected the reaction to be less dramatic.

“I don’t see prices going into freefall at the start of trading (Sunday) evening, but I don’t see the bulls being given any reason to bid prices back up to the $140 level,” she said.

Raad Alkadiri, an oil market expert at U.S.-based PFC Energy, said the Saudi announcement would help ease the fears of some who doubt the kingdom’s ability to produce additional oil, both now and in the future.

But others will continue to worry that Saudi production is hitting its limits, he said. Still others worry Saudi Arabia will continue to say market demand doesn’t justify an increase.

Bush has visited Saudi Arabia twice this year to push the country’s king to increase oil production but has little to show for the effort.

To address long-term concerns about supply, al-Naimi said Saudi Arabia also is willing to invest to boost its spare oil production capacity above the current 12.5 million barrels per day planned for the end of 2009 — again, if the market requires it.

That reversed previous indications the country would not go beyond that figure.

British Prime Minister Gordon Brown echoed U.S. officials’ calls for commitments of specific production increases. Such actions would help ensure that “instead of uncertainty and unpredictability, there is greater certainty, and instead of instability, there is greater stability,” he said.

But he and Bodman also urged consuming countries to increase energy efficiency and invest in alternative sources of fuel. Brown said the high prices — what he termed an “oil shock” — leave industrialized countries with few choices but turning more to nuclear power and lowering energy consumption.

The Associated Press contributed to this report.

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