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Saudi boost risks Opec split
FINANCIAL TIMES
By Javier Blas in London and Andrew England in Kuwait City
Published: May 17 2008 01:41 | Last updated: May 17 2008 01:41
Saudi Arabia’s decision to increase its oil production after intense US pressure threatens to deepen the rift that has emerged inside Opec between the moderate Arab Gulf countries and hawkish Iran and Venezuela.
Analysts said the move was linked to George W. Bush’s personal plea for more oil – the second this year – and threats from leading US senators that they would try to stop a $1.4bn (£717m) arms sale to Saudi Arabia.
They also highlighted the deteriorating relations between Saudi Arabia and Iran after Hizbollah, the Iranian-backed Lebanese opposition movement, seized control of western parts of Beirut and fought loyalists of the pro-western government, triggering the worst violence in Lebanon since the civil war.
Both the US and Saudi Arabia are staunch backers of the weak Lebanese government and were dismayed by Hizbollah’s actions.
Riyadh, however, presented the decision as one based on oil-market fundamentals that was taken a week ago, ahead of Mr Bush’s visit.
John Sfakianakis, chief economist at Riyadh’s SABB Bank, said the timing of the increase, on May 10, was interesting because the Saudis knew the US president was going to raise the issue of petrol prices.
“But as the biggest and most important oil producer they also have sovereignty issues and are not just going to say, ‘Thank you, Mr President, we are going to follow your orders,’” said Mr Sfakianakis.
Frank Verrastro, an energy expert at the Center for Strategic and International Studies in Washington, said it looked as if Washington and Riyadh were trying to avoid the appearance that King Abdullah had been bullied into a rise by the US.
Riyadh’s announcement that it was increasing its oil output by 300,000 barrels a day, to pump about 9.45m b/d in June, the highest level in more than two years, came after Venezuela and Iran said this week that the market was well supplied.
Adam Robinson, an energy analyst at Lehman Brothers in New York, said: “The Saudi output increase certainly does not make anyone happy in Tehran or Caracas.”
Iran even suggested that Opec would need to cut its production, saying that it was storing up to 20m barrels of low-quality heavy oil – equivalent to a week of imports for China – in floating storage in the Gulf, for lack of consumer demand.
But Ali Naimi, the powerful Saudi oil minister, said the kingdom had to increase its production because of lower output by other countries.
Although Riyadh usually adjusts its production outside Opec’s regular meetings to fine-tune its supply to demand, the kingdom usually does not publicise those changes, in order to avoid confrontation with other members of the cartel.
Mr Naimi said the Saudi decision was a response to demand from its customers.
“On May 10 we increased our response to our customers by 300,000 barrels because they asked for it,” he said. He added that Mr Bush was pleased with the Saudi decision.
Additional reporting by Andrew Ward in Washington
Copyright The Financial Times Limited 2008 |
