Saudi Readies for Oil Output Increase
By Karen Matusic Jul 3 4:03pm ET
LONDON (Reuters) - OPEC power Saudi Arabia Monday said it was preparing to raise oil production for the third time this year if crude prices do not fall from current lofty levels within the ``next few days.''
Saudi Oil Minister Ali al-Naimi told the official Saudi Press Agency (SPA) that his country, in consultation with other producers, would increase output by 500,000 barrels per day (bpd) if prices don't fall from more than $30 now to OPEC's target of $25 a barrel.
``We have sought, and will continue in any way we can, to bring the prices down from their current level to the target levels of $25 per barrel of OPEC basket of crudes,'' Naimi told SPA.
``If the price does not decrease, Saudi Arabia, in conjunction with other producers, will increase production by 500,000 bpd, within the next few days.''
An OPEC source told Reuters that the kingdom was willing to unilaterally increase output if other producers could not.
``If the other producers are unable to increase production, Saudi Arabia is willing to do it alone,'' the source said.
Benchmark Brent crude Monday was valued at $31.25 a barrel. Traders said the Saudi initiative probably would knock crude prices down as much as a dollar a barrel when trading began Tuesday.
Later, OPEC President Ali Rodriguez told reporters in Caracas he knew nothing about Saudi Arabia's decision and an official from OPEC member Qatar said the Saudis were acting alone.
Rodriguez, who is also Venezuela's oil minister, said it was essential for the 11 OPEC members to consult on any output move.
``I think that before Saudi Arabia takes any decision it is essential to hold consultations. Until now we have always taken decisions by consensus,'' he added.
Asked about Qatar's position on the Saudi announcement, a Qatari official said: ``Nobody can comment on that. It is a unilateral decision.''
Riyadh's pledge comes less than two weeks after the Organization of the Petroleum Exporting Countries agreed for the second time this year to raise production. OPEC lifted output for 10 members by 708,000 barrels daily to 25.4 million bpd.
Naimi said that Saudi Arabia, the world's largest petroleum exporter, had 2.3 million bpd of unused oil production capacity. He said there was more than one million bpd of excess capacity scattered among other producing countries.
In his SPA interview, Naimi sought to quell market jitters over ``surplus production capacity limitations'' which he described as ``unwarranted,'' by restating that the kingdom had plenty of surplus oil.
Oil traders said Riyadh would have to follow through with its promise, even if oil prices turn lower before it confirms the extra crude.
``(State oil company) Saudi Aramco will have to follow through on this, otherwise it will be a disaster,'' a senior oil executive said.
Another Saudi customer agreed, adding, ``If we don't see the extra barrels, we could be heading for $40 oil.''
Traders wth companies buying Saudi oil said they were gearing up for extra barrels.
Analysts said Saudi Arabia appeared to have listened to demands by the United States, the world's largest oil consumer, for more oil to take the heat out of the prolonged oil price rally.
Vice President Al Gore wasted little time in thanking the Saudis.
Speaking on the presidential campaign trail, Gore said he was ``very pleased'' to hear word of the Saudi increase and urged oil companies to pass any savings to consumers.
``I want to call on the big oil companies to let that (Saudi output increase) pass through in the form of price reductions to the people who are filling their cars up at the gasoline filling stations, so that it is not blocked up in the pipeline of profit, but rather flows through,'' Gore said.
Gore, and the Clinton administration, have been roasted in recent weeks by Republicans for not doing more to deflate oil prices and the resulting run-up in fuel costs.
Naimi said tightness in the United States heating oil and gasoline markets was helping to push crude oil prices beyond $30 a barrel.
Relatively lean inventories of crude and products were also keeping prices firm, the oil minister said.
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This action marks the beginning of the end of OPEC. As noted above, this is the first time that one OPEC member acted unilaterally to increase production. It also represents a tacit admission that the Saudis' are the only ones left with spare production (after taking into account cheating).
IMO this is immensely bullish for the inermediate and long-term prospects of oil prices.
Enjoy the 4th of July folks! |
