Mixed Signals

Saudis See No Reason to Raise Oil Production Now
May 16, 2008
Rigzone

Saudi Arabian leaders made clear Friday they see no reason to increase oil production until their customers demand it, apparently rebuffing President Bush amid soaring U.S. gasoline prices.

During Bush's his second personal appeal this year to King Abdullah, Saudi officials stuck to their position that they are already meeting demand, the president's national security adviser told reporters.

"What they're saying to us is ... Saudi Arabia does not have customers that are making requests for oil that they are not able to satisfy," Stephen Hadley said on a day when oil prices topped $127 a barrel, a record high.

The Saudi government indicated that it is willing to put on the market whatever oil is necessary to meet the demand of its customers, Hadley said.

But even then, he said, Saudi leaders say increased production would not dramatically reduce pump prices in the United States.

The Saudis are investing in ways to increase oil production over time. Officials told Bush they are doing "everything they can do" for now to address a complicated market.

Hadley said the Bush administration will take the explanation back to its own experts and "see it if conforms."

When Bush and Abdullah met in the kingdom in mid-January, the president also sought more Saudi output but got a chilly response to that plea. Saudi Arabia said it would increase production only when the market justified it and that production levels appeared normal.

Bush acknowledges that raising output is difficult because the demand for oil -- particularly from China and India -- is stretching supplies. Also, economists say prices are being driven up by increased demand, not slowed production.

...

Saudi Hikes Output by 300,000 bpd in May
May 16, 2008
Rigzone

Contrary to earlier reports, Saudi Arabia has increased its oil production by 300,000 barrels per day in response to orders from customers, mostly from the United States, and will pump 9.45 million bpd in June, Oil Minister Ali al-Nuaimi said on Friday.

"Every month, we receive (orders) from our customers worldwide. On May 10 we increased our response to our customers by 300,000 barrels because they asked for it," Nuaimi told reporters during a visit by U.S. President George W. Bush to Saudi Arabia.

He said additional demand came from about 50 customers, mostly U.S. clients, "and we responded to it on May 10."

"Our production for June will be 9.45 million barrels per day," he added.

Saudi Oil Minister Says “Not Enough Buyers”

Saudi Oil Minister Says “Not Enough Buyers” to Increase Production
By Tom Waterman
April 10, 2008
Oilintel.com

Paris, France - On the sidelines of an international conference in Paris this morning, it was widely reported that Saudi Arabia's Oil Minister Ali Al-Naimi said "there were not enough buyers of oil to justify an increase in oil production, despite high prices."

This is a direct and accurate statement from the Saudi oil minister, but his next comment is even more telling. He said "that if more buyers emerged, then 'we' would sell. But there were no such buyers."

If you have followed OPEC for the past 30 years as we have, you would understand his logic. Frankly, OPEC will sell all the oil it can, if there are willing buyers. The fact is, Al-Naimi should have told reporters what he told VP Dick Cheney recently. He informed Cheney that they have no room to put any increased output. There are not enough buyers for the oil produced by OPEC and non-OPEC producers, much less if more oil was produced.

Other OPEC nations continue to produce, but they won't admit it. Reports that OPEC produced 100,000 bpd less oil in March than in February is a smokescreen. They certainly produced the same or more, they are just storing the excess until the market might need it, which they hope will be later in April or in May as refineries worldwide start gearing up for the summer driving season.

That's the hope. The reality is this self-defeating marketplace is overflowing with crude oil and even in normal times it might take until the end of June to right itself. With today's dynamics, it might not be resolved during the driving season at all.

That's why the Saudis refuse to pump more oil. What the market will not admit is that the reason OPEC did not officially cut production in the second quarter was due to high prices, and how bad the PR would be.

In our weekly editorial meeting, we could not come up with a time when oil fundamentals were as weak as they are today. And we're talking many decades of experience. Oil stored on vessels, all land-based storage facilities bulging, a series of geo-political factors that provide artificial support without ever removing a barrel of oil from the market.

Perhaps it will take the collapse of the U.S. economy, which is on the horizon unless energy and food prices fall, for the U.S. government to radically change and enhance the regulations that govern commodities and speculation. Increasing the cost of speculation will not solve the problem, only forcing out smaller traders. The large financial institutions that have the biggest stake, and are taking billions in profits can afford any increases. The answer is speculative limits on both the exchanges and the companies that manage these speculative funds. They must find a way to limit how much influence these firms have on baseless prices increases for profit.

Commodity markets are all tremendously affected. Grain tightness does not justify the price of corn, wheat, soybeans or other crops to double, triple and quadruple in price. The oil markets are fundamentally weak, yet prices rise. These financial institutions sell the dollar based on perceptions the Fed may keep lowering interest rates, and buy oil as a hedge. The result? A weaker dollar and justification for higher oil prices. If it were not such a dire situation, it would be comical.
Three years ago, a statement similar to the one uttered by the Saudi oil minister this morning would have sent crude oil crashing, by perhaps $1.50 per barrel, which based on the changes in perception and volatility, would mean about $6.00 per barrel today.

These speculative firms keep the cycle of greed alive and growing while at the same time, sending the U.S. economy into a death spiral. I wish I were exaggerating, but I'm not. I just won't use the "D" word just yet. We were using the "R" word in October, 2007.

Naimi says market sets oil price

Naimi says market sets oil price
http://www.platts.com/Oil/Resources/News%20Features/opec/index.xml
Platts

January 7, 2008 - Saudi Arabian oil minister Ali Naimi was quoted January 7 as saying that oil markets, not producers, determine the price of oil, in his first comments since oil futures traded above $100/b, following comments by OPEC president Chakib Khelil predicting further price rises in the first quarter.

"Prices are determined by the market," Naimi told the Saudi-owned al-Hayat newspaper on the sidelines of an energy conference in Riyadh.

This was Naimi's only comment since oil prices spiked to $100/b last January 2. The front-month light sweet crude oil futures contract in New York traded at an all-time high of $100.09/b the next day but has since fallen back. The February NYMEX contract closed at $97.91/b on January 4.

OPEC kingpin Saudi Arabia is the most influential voice within the producers' club.

Naimi's comment echoed remarks made by OPEC president Chakib Khelil, who told reporters in Algiers on Saturday that oil prices might rise further in the first quarter due to violence in Nigeria, political turmoil in Pakistan and strong demand, before stabilizing in the lower-demand second quarter, though he did not consider $100/barrel high in real terms.

He said oil prices currently a few dollars below $100/b did not reflect fundamentals of supply and demand but rather geopolitics, stock drawdowns in the US and heavy investment by funds in commodities markets.

The next OPEC meeting in Vienna would consider all these factors, not just price, before deciding whether to change its production target, said Khelil, who took over the rotating OPEC presidency on January 1.

"The recent price rally is due mainly to the violence in Nigeria, where production has been shut in, and the turmoil in Pakistan, which is considered by market players to be a geopolitical problem, and of course US stock levels, which are at their lowest in four years," Khelil said.

"Furthermore, it has been a very difficult winter not just in the US but also in Europe, so the combination of these factors led to the price rise," he said, when asked if OPEC would consider raising production.

"There is an extraordinary meeting in Vienna in February which will review the market up to February. We will assess the situation, see whether stocks have fallen further. The decision will be by consensus whether we increase or whether we keep production as is. Only the meeting will decide," said Khelil, refusing to predict what action the group might take.

Pressed further on the issue of an increase in supply, Khelil replied: "This is a question for ministers to decide in the light of market developments. There are so many parameters to consider and to determine the role of fundamentals, whether it is due to supply and demand or all other factors." But he added: "At the moment, prices do not at all reflect supply and demand...There is a balance between supply and demand."

Khelil, who is also the Algerian oil minister, later told French news agency AFP that $100/barrel "was not necessarily very high" given high demand for oil and rising production costs.

The $100/b price should be seen in real terms, taking inflation into account, he said.

The current oil price was therefore below its 1980 record of "between $102 and $110, depending on estimates," he said.

Khelil said that high oil demand was being pushed by "China and India but also by the Middle East," where he said consumption had risen immensely. "When you take that into account, $100 is not necessarily very high."

Saudi Cautious on Oil Plans

Saudi cautious on oil plans as demand uncertain

May 10, 2007
By Simon Webb

DUBAI (Reuters) - Saudi Arabia's reluctance to commit to boosting oil production capacity beyond 2009 is a response to the potentially huge impact on future demand of energy efficiency, alternative fuels and high prices.

Demand uncertainty is providing little incentive for oil producers to risk investing billions of dollars on long-term projects to boost capacity, as they worry it will lie idle.

"This is a major concern for producers," said David Kirsch, manager of market intelligence at Washington-based consultancy PFC Energy.

"If you assume certain conservation measures, alternative fuels and the introduction of some form of carbon limiting legislation, you could take as much as 6 million barrels per day (bpd) off global demand by 2015."

Under the greener world scenario, PFC projects demand growth could be limited to 4 million barrels per day between 2007 and 2015, taking global consumption to 89 million bpd from around 85 million bpd now, Kirsch said.

Without environmental and conservation policies, demand could soar to as much as 95 million bpd, he said.

The International Energy Agency (IEA), adviser to 26 industrialized nations, has pegged the untrammeled demand scenario even higher, at 99 million bpd in 2015.

Faced with such disparate projections, Saudi Oil Minister Ali al-Naimi sent the strongest signal yet last week from the world's biggest oil exporter that it needs concrete signs of demand before committing to further supply boosts beyond its 12.5 million barrels per day target in 2009.

"Our feeling now, with the thrust and push for conservation, efficiency and the use of alternatives, is that we probably need not go beyond 12.5 million bpd," Naimi said after a gathering of Asian and Middle East energy ministers in Riyadh.

Naimi has called for better data on future demand, turning the tables on oil consumers that press producers for commitments to boost output capacity.

Saudi Arabia sits on a quarter of the world's oil reserves and is seen as one of the principal sources of future supply growth. The IEA has forecast the kingdom may need to boost output to as much as 18 million bpd by 2030.

Targeting that kind of capacity boost would be unwarranted in the current price environment and may anyway be unsustainable, said Sadad Husseini, a former top executive at Saudi Arabian oil firm Saudi Aramco.

"I think the oil minister's comments introduce a certain realism to all these projections that wasn't there before," he said. "It's not that demand will go down, it's that it will level off at these higher
prices."

Soaring energy costs globally, as the industry strains to bring new capacity online, are making producers more cautious.

"Making such investments at a time when capital expenditure costs are at an all-time high entails a significant risk. The last thing we need is idle capacity," OPEC President and United Arab Emirates Oil Minister Mohammed al-Hamli said in Riyadh.

HIGH PRICES CURB DEMAND

High prices have slowed annual demand growth from the breakneck pace of 2004, when the world's thirst for oil grew more than 3 million bpd. Last year, annual growth was just over 750,000 bpd, according to the IEA.

As oil markets reeled from the 2004 growth, Saudi Arabia accelerated its plans to expand to the 2009 target to ensure it kept spare capacity of at least 1.5 million bpd to deal with any surprise global supply outages. Naimi said then that the kingdom could raise capacity further to 15 million bpd if needed.

Since then, as well as encouraging conservation and alternatives, high prices have allowed non-OPEC producers to begin drilling oilfields that were previously deemed too expensive, a process that continues to play out.

"We still haven't seen the full effect of the high price scenario on non-OPEC supply," said Husseini.

Saudi Arabia and other OPEC members late last year agreed to cut production by 1.7 million bpd to bolster prices. Even before then, the kingdom had reined in supply on slower demand for its oil.

According to a Reuters survey, Saudi Arabia was producing around 8.5 million bpd in April, down from around 9.45 million bpd in March 2006. With capacity of around 11.3 million bpd, it is already sitting on spare capacity of nearly 3 million bpd.

Should demand growth again begin to quicken, the kingdom could quickly install new capacity, the IEA said.

"We are not too concerned about our long-term numbers," said William Ramsay, the IEA's deputy executive director. "They can put in spare capacity very quickly if they want to."