Saudi boosts oil output

James Reinl, United Nations correspondent

• Last Updated: June 15. 2008 10:18PM UAE / June 15. 2008 6:18PM GMT

Prince Saud Al Faisal (right), the Saudi foreign minister, welcomes Ban Ki-moon, the UN secretary-general upon his arrival at Jeddah airport. Saudi Press Agency

JEDDAH // The world’s largest oil producer, Saudi Arabia, will increase its oil production by 200,000 barrels per day (bpd) to 9.7 million bpd next month in a bid to meet soaring demand, its oil minister told the UN secretary-general yesterday.

The planned increase comes amid heightened pressure on the kingdom to douse world oil prices, which hit a record price of US$139.12 (Dh510) a barrel on June 6.

Oil prices eased earlier today in response to the announcement. New York’s main oil futures contract, light sweet crude for July delivery, was 96 cents lower at $133.90 dollars a barrel. Brent North Sea crude for August delivery was 71 cents lower at $134.40.

Saudi Arabia already raised its oil production by 300,000 bpd in May to 9.45 million bpd, and the next increase will take output close to record levels last seen in 2003.

Ali al Naimi, the country’s oil minister, told Ban Ki-Moon, the UN secretary-general, the kingdom was increasing production in response to consumer demand, Mr Ban said.

“9.7, that is what he said,” Mr Ban said, in reference to Mr Naimi’s production target for July.

“As far as the Saudis are concerned, they will respond positively whenever there is a request from their customers so there will be no shortage of petroleum,” he said. “They don’t want to be blamed for a lack of production.”

The figure differs from a report in The New York Times on Saturday that said Saudi production would increase by 500,000 bpd to 10 million bpd next month.

Mr Ban said the article was “misleading”, adding that the Saudis had already increased production by 300,000 bpd throughout June and would raise output by a further 200,000 bpd in July.

The rising production comes as Saudi Arabia inaugurates a big new oil field, the Khursaniyah field, expected to come on stream next month.

The Khursaaniyah field can produce a maximum of 500,000 barrels per day of Arab light crude.

But Mr Naimi warned that oil consumers would also have to reduce taxes on fuel and limit market speculation if they really wanted to combat high oil prices, Mr Ban said.

“It is not only the producers, there are many issues that have caused this, particularly speculation and national governments’ policies on taxes,” said Mr Ban.

Earlier, King Abdullah blamed soaring crude prices on market speculation and the policies of oil-consuming nations.

The Saudi monarch said the kingdom was already producing “beyond their normal capacity” and was not solely responsible for “abnormally high” oil prices.

Mr Ban’s visit came ahead of a summit between consumers and producers in Jeddah scheduled for Sunday.

The leader of the world body said Mr Naimi “also acknowledged the current oil price is abnormally high due to speculative factors and some of the national governments’ policies’ systems, and he is willing to do what he can to manage the price of oil to the adequate level”.

“He told me that Saudi Arabia had already increased [by] one million barrels a day production, which has been excessive beyond their normal capacity, but they seem to be considering very seriously how they can address these issues by increasing production of oil.”

Mr Ban spoke following a 70-minute meeting with the monarch at the Royal Palace in Jeddah on Saturday, during his second visit to the kingdom since becoming secretary-general last year.

King Abdullah was scheduled to host talks between members of Opec, Russia, Norway, Mexico and Brazil, and big consumers including the US, Britain, Germany, France, Japan, China and India, on Sunday.

Chakib Khelil, the Opec president, has said the cartel would make no new decision on production levels until its Sept 9 meeting in Vienna. Saudi Arabia is the only Opec member with spare ­capacity.


Many oil producing nations have called on oil consumers to review the regulation of futures exchanges, where oil prices are set. Analysts say a flood of money from speculators fleeing bonds and equities has exacerbated the decade-long run-up in oil prices from $10 in 1998 to almost $140 earlier this month.

Italy has called for an increase in the deposit required from traders seeking to buy and sell oil futures.

In talks with King Abdullah, Mr Ban said he outlined his concern over “the impact of the oil price rise in raising the cost of food and other essentials” for the world’s poor.

“This will affect the whole spectrum of our life,” Mr Ban said.

“It will undermine our capacity to address climate change issues [and the] global food crisis,” he added.

Mr Ban’s trip to Saudi Arabia coincided with the visit of Malcolm Wicks, the British energy minister, who also raised concerns over crude costs with Mr Naimi on Saturday.

Mr Wicks said high oil prices were hitting those least able to afford it, at an industry forum in Riyadh yesterday. “The dramatic price rise has put pressure on economies. It has put energy security of some countries under strain, and it is creating real problems for many of those people that are least able to pay for the energy they need,” he said.

However, he said an imbalance in demand and supply that was partly behind the price spike could last for years. ”The sheer scale of the price rises speaks of a clear belief that this supply and demand imbalance will continue for years to come,” Mr Wicks said.

The Jeddah meeting comes before a summit of the Group of Eight (G8) industrialised nations next month in Japan.

Energy ministers from the G8 wrapped up a meeting on Saturday with a statement urging oil producers to boost output and to help stabilise record prices.

“Elevated commodity prices, especially of oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable and may increase global inflationary pressure,” the G8 said.

The main factor driving oil prices was the imbalance between rising global demand and supply constraints, the ministers said. They added that geopolitical and financial factors also played a role – a reflection of some ministers’ view that speculative trading in oil markets was pushing up prices.

Speaking at the conclusion of the talks, Henry Paulson, the US treasury secretary, insisted the problem stemmed primarily from tight supplies and warned against embracing “short-term solutions”.

“I think there’s a danger if people say, ‘Oh, it’s the speculators’,” Mr Paulson said. “We don’t want to misdiagnose the problem. And if you look at the problem, I think it’s pretty clear. We have not had an increase in production capacity in oil for the last 10 years.”

Alistair Darling, chancellor of Britain, a G8 member along with Canada, France, Germany, Italy, Japan, Russia and the UA, said: “What we need to do, as a matter of urgency, is to increase supplies.”

Rising crude prices have forced Asian importing nations to slash domestic fuel subsidies and oil-hungry companies, such as United Airlines and Continental Airlines to cut jobs. UN officials said oil costs affected shipping and fertiliser prices, contributing to a food price inflation that had sparked riots in developing countries from West Africa to South Asia.

Saudi Arabia has already made an unprecedented contribution to tackle the problem, donating $500 million to the World Food Programme to respond to rising prices last month, meaning the UN agency did not have to cut rations to the world’s needy.

Mr Ban, who flew to Jeddah from London aboard a Saudi-owned 777 for the 24-hour official visit, said Saudi investment in agriculture in Egypt, Pakistan, the Ukraine and Turkey would also help alleviate the impact of soaring food prices.

jreinl@thenational.ae