Saudi Arabia’s oil minister said Tuesday that the kingdom has enough oil in the ground to meet global demand for decades to come and that there is no plan to curb daily output, even as rising inventories help ease prices below $50 a barrel.
Ali Naimi said the world’s largest petroleum exporter will not reach peak output anytime soon and that it is in Saudi Arabia’s financial interest to try to bring down very high prices, which hinder economic growth and sap demand.
“I stand here to tell you that Saudi Arabian reserves are plentiful, and we stand ready to raise output as the market dictates,” Naimi said at a conference that brought him and U.S. Energy Secretary Samuel Bodman together, publicly, for the first time.
Although Naimi’s message was conciliatory toward the U.S., the world’s largest energy consuming nation, his words failed to impress the market. While prices have come down from a high above $58 a barrel early last month, light, sweet crude for June delivery rose 36 cents on Tuesday to settle at $48.97 a barrel on the New York Mercantile Exchange.
Bodman said oil consumption is rising at a pace that is challenging the world’s producers at the moment, but he said high prices will moderate consumption and encourage suppliers to develop more reserves.
“The question is: How rapidly can we respond?” said the energy secretary, who encouraged Americans to think about ways they can use energy more efficiently.
Saudi Arabia now pumps 9.5 million barrels of oil daily, with the capacity to produce 11 million barrels a day. By 2009, the country’s daily production capacity will be 12.5 million barrels, Naimi said, reiterating an earlier pledge.
“I can assure you that we haven’t peaked,” Naimi said in response to a question. He added that Saudi Arabian production instead is headed toward a plateau where it “can maintain 12.5 million or 15 million for the next 30 to 50 years.”
And if the per-barrel price of oil hovers somewhere between $30 and $50, Naimi said there would be ample financial incentive to raise production capacity in the Persian Gulf and other regions, including Russia, the Caspian, West Africa and the Gulf of Mexico.
Bodman said a range of $20-$40 per barrel would likely be sufficient.
But Naimi said the challenge for the global energy market is greater than just increasing crude oil capacity. He said the industry must remove refining bottlenecks, improve efficiency and conservation, and provide better data on supply and demand, among other things, until the world no longer relies on hydrocarbons to meet its energy needs.
The speeches came the same day the Organization of Petroleum Exporting Countries released its monthly oil report, which trimmed forecasts for world daily oil demand for the year by 80,000 barrels a day to 83.94 million barrels. The OPEC report cited weakening economic growth and high prices.
The report also said OPEC would have to pump at its highest-ever rate this winter because of sharply weaker oil output from non-OPEC producers.
Oil analyst John Kilduff at Fimat USA in New York, a brokerage unit of French bank Societe Generale, said OPEC reacted too quickly to falling prices last year, a reference to OPEC’s decision in December to cut output by 1 million barrels per day. Then in March, after prices had shot up, the cartel returned half that amount to the market.
While oil prices are about $10 below the heights reached in early April, they remain about 18 percent higher than a year ago due to a combination of factors, including analysts’ fears that the 1.5 million barrels per day of excess capacity in Saudi Arabia is too small a cushion.
The market has been on edge for about two years as a result of potential and actual supply disruptions in Iraq, Nigeria, the Gulf of Mexico and the North Sea, among other regions.
Prices peaked above $58 a barrel in early April, but have since retreated due to rising supplies in the United States, a strengthening dollar and evidence of slower demand growth in China.
Oil analyst James Burkhard of Cambridge Energy Research Associates said oil prices are cyclical, but cautioned that “it’s not inevitable that we’ll see prices fall from where they are now.”
“The key variable is demand growth,” he said.
World oil consumption rose by 3.5 percent in 2004, according to the International Energy Agency, which is forecasting demand growth to slow to 2.2 percent in 2005.