Saudi Arabia Pumps 9.53 mbpd in June

Oil Trades Near Record as Investors Seek Alternatives to Stocks
By Christian Schmollinger
July 4 (Bloomberg)

Crude oil traded near a record in New York above $145 a barrel, set for a second week of gains, as investors purchased commodities as an alternative to flagging equities markets.

Oil has risen 19 out of 27 weeks this year as money managers bought crude futures rather than U.S. stocks, which yesterday completed the longest streak of weekly declines in four years. The International Energy Agency said July 1 that spare OPEC capacity will shrink by 2013, keeping the market ``tight''.

The Organization of Petroleum Exporting Countries increased production 1 percent in June, as Saudi Arabian output rose to a two-year high, a Bloomberg News survey showed.

OPEC pumped an average 32.52 million barrels a day in June, up 320,000 barrels from May, according to the survey of oil companies, producers and analysts. May output was revised down by 80,000 barrels a day. Output by the 12 members with quotas, all except Iraq, rose 380,000 barrels to 30.09 million barrels.

Saudi Output

Saudi production increased 280,000 barrels to an average 9.53 million barrels a day last month, the highest since March 2006. It was the biggest gain among OPEC members last month and represented 88 percent of the overall OPEC increase.

The world has as much as 5 trillion to 7 trillion barrels of oil yet to be developed, located in ``challenging'' areas or acreage closed to exploration, Saudi Arabian Oil Minister Ali al-Naimi said.

``The limits to future supplies have more to do with politics than with geology and resource availability,'' al-Naimi said in Madrid, speaking at the World Petroleum Congress, where he is receiving an industry award. Concern over supply can be overcome by allowing ``explorers to explore and find hydrocarbons where they aren't allowed,'' he said.

Khurais

Giant Saudi field is key to boosting oil output
Remote Khurais project should be supplying crude by June of next year
The Associated Press
June. 29, 2008

This massive oil field surrounded by the desolate sands of Saudi Arabia's vast eastern desert feels like the middle of nowhere.

But what happens over the next year at Khurais, one of Saudi Arabia's last undeveloped giant oil fields, could hold the key to what drivers will pay at the pump for years to come.

Under way at Khurais and two other smaller fields nearby is what Saudi Arabia calls the single largest expansion of oil production capacity in history.

With consumers howling over record fuel prices and the United States pushing Saudi Arabia to produce more oil, this patch of sand 100 miles west of the Saudi capital of Riyadh has become one of the most important places in the world economy.

Saudi Arabia's state-owned oil company, Aramco, is spending $10 billion to build the infrastructure to pump 1.2 million barrels of oil per day by next June from the Khurais field and its two smaller neighbors. That alone would be more than the total individual production of OPEC members Qatar, Indonesia and Ecuador.

The project forms the centerpiece of the Saudi plan to increase the total amount of oil it can produce to 12.5 million barrels per day by the end of 2009 — up from a little more than 11 million barrels per day now.

Consuming nations have pushed Saudi Arabia to boost production capacity even further and also want the world's top oil exporter to begin pumping more crude immediately to bring down record oil prices hovering near $140 a barrel. They say oil production has not kept up with increased demand, especially from China, India and the Middle East.

Saudi Arabia plans to produce 9.7 million barrels of oil per day, or 11 percent of the world's total, in July. It is the only nation with significant excess capacity that it could put on the market quickly.

But the kingdom has resisted calls to increase production further, saying financial speculators and the falling dollar are to blame for high oil prices, not a shortage of supply.

These disagreements came to a head June 22 at a rare meeting of oil producing and consuming nations hosted by Saudi Arabia. In the end, Saudi Arabia said it could increase oil production capacity to 15 million barrels per day if needed in future years. But it gave no indication that step, or an immediate increase in output, was necessary or planned.



The political tussle over output masks the challenge Saudi Arabia faces in boosting production capacity by developing giant fields like Khurais.

"That is what people don't appreciate," said Manouchehr Takin, an oil expert at the London-based Centre for Global Energy Studies. "These are major projects, and people don't realize they aren't that easy."

The Saudis estimate Khurais and the nearby smaller Abu Jifan and Mazalij fields hold a total of 27 billion barrels of oil encased in solid rock 5,000 feet below the baking desert.

Saudi Arabia is no stranger to developing giant oil fields. Its massive Ghawar field, with an estimated 70 billion barrels of remaining reserves, is the world's largest.

But oil experts say Khurais, which was discovered in 1957, is geologically more difficult to tap.


Aramco is using hundreds of mostly South Asian workers to build a massive processing facility at the field. More than 150 wells will pump crude to the surface, where water and gas will be separated out. The oil then will be funneled to the country's east-west pipeline for delivery to ships in the Red Sea.

Workers are also building a huge sea-water injection system to pump more than 2 million barrels of water per day from the Gulf into 120 wells. That will maintain the necessary pressure underground to push the oil to the surface.

Disputes over Saudi's decisions aside, "when you talk about the fields and the engineers and so on, I think you have to respect their technical ability," Takin said.


With its twisting maze of metal, the half-finished facility rises out of the desert like a massive space station. Workers wear gloves and wrap bandanas across their faces to hide from the searing sun as they work 10-hour shifts in temperatures well above 100 degrees.

Aramco officials say that in addition to geological challenges, they also face difficulty finding enough qualified workers and equipment. The project will use 145,000 tons of steel — almost enough to build two Golden Gate bridges.

"We are trying to do it in a world market where contractors are in high demand," said Muhammed al-Rubeh, head of Aramco's project department.

When completed, the processing facility also will be protected by two layers of fences, crash barriers, security cameras and government forces, Aramco says. Al-Qaida has called for attacks against Saudi Arabia's oil facilities to disrupt the flow of crude.

Aramco officials insist that despite the tight construction market, the Khurais project will be ready to produce 1.2 million barrels per day by next June.

But equipment and labor shortages have delayed production at another field, Khursaniyah, which was originally scheduled to begin pumping 500,000 barrels per day at the end of 2007. Aramco officials now say Khursaniyah will come online in August.

Also in the works is the development of the Manifa field, which sits offshore in the Gulf and is Saudi Arabia's only other giant oil field still untapped.


If all goes as scheduled, Aramco forecasts more than 50 billion barrels of fresh reserves from the giant fields by 2011. That amount alone would give Saudi Arabia the ninth largest oil reserves in the world, not even counting its existing reserves.

Outside analysts estimate the kingdom's total current reserves at about 260 billion barrels. But Saudi Arabia refuses to provide detailed data to allow independent verification.

Amin Nasser, senior vice president for production and exploration at Aramco, acknowledges the company sometimes faces criticism for that secrecy. "We have a tradition of letting our actions and accomplishments speak for themselves," he said.

URL: http://www.msnbc.msn.com/id/25443913/

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.

Al-Naimi

No Need for Further Saudi Oil Capacity Expansion — Al-Naimi
Reuters
ROME, 20 April 2008

Top oil exporter Saudi Arabia has no plans to embark on further capacity expansion as long-term oil demand forecasts fall and alternative fuel supplies rise, the Saudi oil minister told industry newsletter Petroleum Argus.

The holder of the world’s largest oil reserves sees no need to go beyond its 2009 capacity target of 12.5 million barrels per day “at least up to 2020,” Minister of Petroleum and Mineral Resources Ali Al-Naimi said.

Long-term future energy demand forecasts have fallen sharply, he said in the interview given to the weekly on April 11, casting doubt on the need for more Saudi oil.

Demand forecasts have fallen as low as 106 million bpd in 2030, down from previous estimates as high as 130 million bpd. The world currently consumes around 86 million bpd.

“The projection of demand is on the decrease,” Al-Naimi said. “The projection of alternative fuels is on the rise. Therefore, it behoves us to pause, instead of expending unnecessary funds on expanding capacity that will probably not be needed,” he said. “We will watch what happens in the coming years. It is a pragmatic position.”

Saudi Arabia has spent tens of billions of dollars on projects to meet growing world demand and maintain spare production capacity of 1.5 million-2.0 million bpd to deal with any unexpected outages in global supply. The Kingdom has previously said it could take output capacity of 15 million bpd.

The Kingdom is the only oil producer with substantial spare capacity that can be brought online quickly.

“We are idling at around 9 million bpd and we will reach capacity of 12.5 million bpd by 2009,” Al-Naimi said. “That is substantial spare capacity. As far as I know, all the latest projections, at least up to 2020, do not require anything higher than that.”

A Saudi oil official said earlier this month that output stood at around 9 million bpd. Current capacity is around 11.3 million bpd.

Al-Naimi said the oil market did not need more oil and crude inventories were “fairly high”.

“Today there is no reason to jump up and down and say ‘we will supply more crude’ — because that request from consuming countries is probably politically driven rather than a fundamental requirement,” he said.

British Prime Minister Gordon Brown this week said he wanted to see collective action to persuade the Organization of the Petroleum Exporting Countries (OPEC) to boost output and bring down prices. US President George Bush has also repeatedly urged OPEC to supply more oil.

But boosting Saudi oil output would destabilize the market, Al-Naimi said.

“We would be flooding the market,” he said. “The market cannot handle it, there is no demand.”

The price of oil was divorced from oil market fundamentals, Al-Naimi said. Oil has become a hedge for investors, like gold, against the falling value of currencies, he added.

“That is the reason for the pressure on the price of oil,” he said.

US crude hit a record of $117 a barrel on Friday.

Rising costs for materials, construction and oil service contracting has pushed up the cost of adding new oil output capacity in Saudi Arabia to between $5000 and $8000 per barrel, Al-Naimi said.

Capacity additions at the Shaybah oilfield, where state oil firm Saudi Aramco is adding 250,000 bpd to current capacity, cost around $5000 per barrel he said. At the giant Ghawar field, additional capacity costs were around $2000 per barrel.

Costs for new refineries had almost doubled from initial estimates, Al-Naimi said, although he did no refer to any specific plants. The cost of new joint venture refineries between Aramco and France’s Total and US major ConocoPhillips has risen above $10 billion from initial estimates of $6 billion, industry sources have said.

The highest depletion rates at Saudi oilfields were around 2-3 percent per year, Al-Naimi said. Reservoir management and drilling prevented higher decline, he added. Decline rates at existing wells were around 6-8 percent per year.

The only capacity addition that Saudi Arabia has detailed beyond 2009 is the 900,000 bpd Manifa field, which is to replace decline at other fields, Al-Naimi said.

“Manifa is really a ‘maintain potential’ facility, Al-Naimi said. “It does not add to our spare capacity.”

Saudi King says keeping some oil finds for future

Saudi King says keeping some oil finds for future
04.13.08
Reuters

Saudi Arabia's King Abdullah said he had ordered some new oil discoveries left untapped to preserve oil wealth in the world's top exporter for future generations, the official Saudi Press Agency (SPA) reported.

"I keep no secret from you that when there were some new finds, I told them, 'no, leave it in the ground, with grace from god, our children need it'," King Abdullah said in remarks made late on Saturday, SPA said.

The U.S. President George W. Bush in January urged the Saudi king to help tame soaring prices by encouraging OPEC to pump more oil. On separate trips to Saudi Arabia this year, the U.S. energy secretary also asked for more oil, while the vice president discussed high prices with the king.

The kingdom has spent billions on building over 2 million bpd of spare crude capacity and is the only country in the world able to bring online large volumes of crude supply quickly to deal with unexpected supply shortages.

OPEC held production steady at meetings in February and March despite calls for more oil from the U.S. and other consumers. OPEC officials blame the high price on factors beyond the group's control such as the weak dollar, investment flows into commodities and speculation. Saudi Oil Minister Ali al-Naimi said last week that global oil markets were well supplied and there was no need to put more oil on the market, despite prices hitting a record of over $112 a barrel last week.

Saudi Arabia has trimmed its output to around 9 million bpd to reflect lower customer demand, a Saudi oil source said on Friday. The kingdom had in previous months pumped around 9.2 million bpd. Crude demand traditionally dips at this time of year after the end of winter as refiners carry out maintenance and prepare to meet summer demand.

Saudi production capacity stands at around 11.3 million bpd, and is scheduled to rise to 12. 5 million bpd next year. (Editing by Will Waterman)

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.

The Construction Site Called Saudi Arabia

The Construction Site Called Saudi Arabia
By JAD MOUAWAD
January 20, 2008
The New York Times

RABIGH, Saudi Arabia — The alarm bell sounded the end of the lunch break here one November afternoon, and suddenly thousands of workers — on foot, on bicycles and in buses — streamed in, seemingly from out of nowhere, and jolted this huge construction site to life.

Amid a forest of cranes, towers and beams rising from the desert, more than 38,000 workers from China, India, Turkey and beyond have been toiling for two years in unforgiving conditions — often in temperatures exceeding 100 degrees — to complete one of the world’s largest petrochemical plants in record time.

By the end of the year, this massive city of steel at the edge of the Red Sea will take its place as a cog of globalization: plastics produced here will be used to make televisions in Japan, cellphones in China and thousands of other products to be sold in the United States and Europe. Construction costs at the plant, which spreads over eight square miles, have doubled to $10 billion because of shortages in materials and labor. The amount of steel being used is 10 times the weight of the Eiffel Tower.

“I’ve worked on many big things in my life, but I’ve never worked on anything this big,” an American project manager mused during a bus tour of the project, called Petro Rabigh, a joint venture of the state-run oil company Saudi Aramco and Sumitomo Chemical of Japan.

Size isn’t the only consideration. The project is Saudi Arabia’s boldest bet yet that this oil-rich kingdom can transform itself into an industrial powerhouse. The plant is part of a $500 billion investment program to build new cities, create millions of jobs and diversify the economy away from petroleum exports over the next two decades.

“The Saudi economy was in idle mode for 20 years,” said John Sfakianakis, the chief economist at SABB, formerly known as the Saudi British Bank, who is based in Riyadh, the Saudi capital. “Today, the feeling here is, ‘We’ve won the lottery; let’s not waste it.’ ”

The kingdom’s lofty economic goals would have been unthinkable without the surge in energy prices that has filled the coffers of oil producers. Oil prices have quadrupled since 2002 and reached $100 a barrel in New York this month.

Persian Gulf countries earned $1.5 trillion in oil revenue from 2002 to 2006, twice as much as in the previous five-year period, according to the Institute of International Finance, a global association of banks that is based in Washington. As the top exporter, Saudi Arabia has been the main beneficiary.

Despite all the recent headlines about Middle East investors bailing out troubled American banks like Citigroup, a growing share of today’s petrodollars are staying at home to finance megaprojects like Petro Rabigh, analysts say. That money is financing the biggest economic boom in a generation, helping to build not only the high-rises of Dubai, where the world’s tallest tower is going up, but also telecommunications networks, roads and universities throughout the Middle East.

Abu Dhabi is planning to spend close to $1 billion for a new museum with the help of the Louvre, in Paris. Dubai’s latest grandiose idea is to build a small-scale replica of the French city of Lyon, complete with residential housing, a museum, a culinary school and a soccer club.

In Saudi Arabia, Riyadh looks like a boom town: sprawling over 40 miles, it is teeming with shopping malls, electronics stores and luxury boutiques. But while times are good today, many Saudis realize that their country is locked in a race against time to create industries that produce more than just oil in order to keep a young and growing population employed. The kingdom, which has a population of 24.5 million, including nearly 7 million foreigners, has what one analyst called a “human time bomb.” About 40 percent of Saudis are under 15, and because the country has one of the world’s highest birth rates, the population is expected to reach nearly 40 million by 2025.

“It has been a social, and therefore a political, imperative of the Saudi government to develop the economy and to create employment opportunities,” said Timothy S. Gray, the chief executive of HSBC Saudi Arabia.

That could well mean that higher oil prices are here to stay. One paradox of modern-day Saudi Arabia is that while it seeks to reduce the importance of petroleum to its economy, it needs those exports more than ever.

TO be sure, the region’s economies are too small to absorb all the oil riches on their own. Too much money is chasing too few assets, analysts say, forcing oil producers to invest some of their revenue abroad and diversify their holdings, either through opaque state-owned investment funds or through direct private investments.

Last year, for example, a fund controlled by the government of Abu Dhabi bought a stake in Citigroup for $7.5 billion, while another run by Dubai’s ruler bought a large share in Sony, the Japanese consumer electronics giant. Sabic, a major Saudi petrochemical company, bought the plastics division of General Electric for $11.6 billion, and the Kuwait Petroleum Corporation bought half of Dow Chemical’s commodity-plastics unit for $9.5 billion.

In recent weeks, other big banks plagued by losses from the mortgage crisis, like Merrill Lynch and Morgan Stanley, have raised tens of billions of dollars from a variety of Middle Eastern and Asian funds, including ones from Kuwait or Saudi Arabia.

According to data compiled by Bloomberg News, overseas investments by Persian Gulf countries reached a record $75 billion in 2007. Arms deals, a time-worn way of recycling petrodollars, remain popular in the region; the United States is pushing for a $20 billion weapons sale to Saudi Arabia, for example. But while oil-rich states are still buying American Treasury bonds or military hardware from the West, analysts say the more significant trend is for a growing share of their investments to be pumped into local projects.

“The vision is to turn the kingdom into a major industrial power by 2020,” said Jean-François Seznec, a professor at Georgetown University who is a specialist in industrial policies in the Persian Gulf. “A billion dollars here and a billion there, and soon you’re talking about real money.”

Projects like Petro Rabigh, Mr. Seznec said, will allow Saudi Arabia to become one of the top three chemical producers in the world within a few years. Unlike Kuwait or Abu Dhabi, Saudi Arabia does not have a sovereign fund responsible for investing the country’s petroleum riches.

Ali Al-Naimi, the kingdom’s energy minister and one of the grand architects of Saudi industrial policy, summed up the country’s goals at the dedication ceremony for Petro Rabigh in 2006.

“I would like to highlight the fact that the Petro Rabigh project is part of a bigger picture,” Mr. Naimi said at the time. “This strategy includes expanding the base of the Saudi economy, diversifying national income sources, attracting international investments and reaping the direct and indirect benefits that these types of projects will accrue to the Saudi citizen.”

The trend to modernize and develop the economy is not entirely new, of course. Saudi Arabia has been trying to diversify itself for over two decades. It famously tried to make the desert bloom in the 1970s and ’80s by investing heavily in water desalinization plants and growing crops.

But a long period of low oil prices, from the mid-1980s through the 1990s, stalled much of its effort. The government still relies on petroleum exports for 90 percent of its revenue; oil sales account for half of the country’s gross domestic product.

The current level of oil prices has given the country’s industrialization strategy a new spring, allowing the government to improve its finances while investing in large infrastructure projects. The Saudi G.D.P. has doubled in the last five years. Not counting oil, economic growth has been 4 percent to 6 percent a year since 2002.

Oil has not been the only engine of growth. The country’s private sector has also thrived and now accounts for 45 percent of the economy, compared with just 20 percent about 20 years ago. Since the 1990s, the share of private Saudi money invested at home has doubled, and now represents about 20 percent of total holdings, according to SABB.

“There is a lot of money looking for investment opportunities,” said Mr. Gray at HSBC.

The financial turnaround has been spectacular. In 1999, the Saudi government’s debt amounted to 120 percent of G.D.P. That number has dropped to less than 20 percent as the government paid back its obligations and put its finances in order.

Last year, the government recorded a budget surplus of $48 billion, five times the surplus of 2003. This year, it has built its biggest budget to date around a conservative estimate of oil prices of $45 a barrel; that will almost certainly yield a substantial surplus at the end of the year.

All of that is a far cry from the 1990s, when oil averaged $20 a barrel, thanks mostly to Saudi concerns at the time to keep oil prices low.

One of the most noticeable illustrations of the industrialization push is a plan championed by King Abdullah, the 83-year-old Saudi monarch, to build six new cities throughout the country — including the King Abdullah Economic City on the western coast, near the city of Rabigh; the Knowledge Economic City, near Medina; and the Prince Abdulaziz bin Mousaed Economic City, in the north.

The intent is to create industrial centers that double as housing and commercial hubs for the country’s young and growing population. The Saudi Arabian General Investment Authority, a government agency, expects these cities to add $150 billion to the country’s G.D.P. by 2020, create one million new jobs and be home to as many as five million people.

Drawings of these new towns depict a cross of the futuristic “Blade Runner” and traditional Arabic design. But the new cities are also expected to become new industrial centers that focus on four main sectors: petrochemicals, aluminum, steel and fertilizers.

According to SABB, these cities together will have four times the geographical area of Hong Kong, three times the population of Dubai, and an economic output equal to Singapore’s. Other plans include building four refineries, two petrochemical plants and a modern graduate-level university with an endowment of $10 billion.

The frenzied growth of the economy has had some serious downsides. Inflation has been rampant in the last year; food prices and rents have risen sharply. Traffic jams in Riyadh and other Saudi cities have become a constant affliction, while real estate values have soared and the construction sector is strained by a lack of workers.

The stock market, meanwhile, has yet to recover from its collapse two years ago. From 2000 to early 2006, the local Tadawul stock index surged from 2,000 points to a peak of 19,870, a return of almost 900 percent. But the overvalued market went into a panicky free fall that caused it to lose two-thirds of its value in a matter of months.

After being flat for most of 2007, the market has recovered in the last quarter, gaining more than 40 percent. Still, its value is only about half that of its peak two years ago.

One reason for the partial rebound was anticipation of the sale of shares in Petro Rabigh earlier this month. For the first time, Saudi investors had a chance to buy a major asset linked to Aramco. The initial public offering, for 25 percent of Petro Rabigh, raised $1.23 billion and was the largest stock sale in Saudi history. The stock is expected to begin trading at the end of the month.

The project itself is still about a year away from completion. Once in operation, it will produce 2.4 million tons of plastics a year. This venture, along with dozens of other megaprojects, will firmly anchor Saudi Arabia as one of the world’s top suppliers of chemical products as well as oil.

“Saudi Aramco has a vision of itself as Exxon Mobil,” Mr. Seznec of Georgetown said, “except much bigger.”

Saudi Aramco Raises Crude Oil Prices to the U.S.

Saudi Aramco Raises Crude Oil Prices to the U.S. for February
By Nesa Subrahmaniyan
Jan. 7 (Bloomberg)

Saudi Aramco, the world's largest state oil company, increased its official selling prices for crude shipments to the U.S. for a second month in February.

The discount of Arab Light, the most common variety exported by Saudi Arabia, to Saudi Aramco's benchmark price narrowed to $4.15 a barrel from $6.85 a barrel in January, the Dhahran-based company said in a faxed statement on Jan. 5. Discounts for Extra Light, Arab Medium and Arab Heavy were also reduced. Aramco raised prices of Arabe Medium and Arab Heavy grades for Asian customers, while cutting them for Europe.

For U.S. customers, prices for all grades were raised by between $2.50 and $2.80 a barrel. Arab Extra Light's discount narrowed to minus $1.10 a barrel from minus $3.90 a barrel, Arab Medium to minus $7.45 from $10.05 and Arab Heavy grade to minus $10.75 from minus $13.25, Aramco said.

Prices to the U.S. are set as a discount to the West Texas Intermediate benchmark.

For Asian customers, Saudi Aramco cut its premiums for Arab Super Light, Extra Light and Arab Light by between 20 cents and $1 a barrel. Asian prices are quoted in relation to the average of Oman and Dubai grades, the two Arabian Gulf benchmarks used by Asian oil refiners and traders. Aramco started linking its prices to the average of Oman and Dubai crudes in 1986.

Aramco cut the premium for Arab Super Light by $1 to $6.05 a barrel, by 40 cents to $4.95 for Extra Light and by 20 cents to $1.55 for Arab Light. It narrowed discounts for Arab Medium by 10 cents to minus $1.75 a barrel and by 30 cents to minus $4.80 a barrel for its Arab Heavy grade.

Europe Shipments

Refiners in Europe and the Mediterranean would pay less for Saudi Arabian crude oil shipments in February.

For its Northwest European customers, Aramco widened Arab Light's discount to the benchmark by 25 cents to minus $3.15, Arab Medium was lowered to minus $5.70 and Arab Heavy reduced to minus $7.90, while Extra Light was cut to a premium of $1.20 from $1.55.

Oil refiners in the Mediterranean would pay between 50 cents and 70 cents less for their shipments from Saudi Arabia.

Mediterranean and European prices are expressed as a differential to Intercontinental Exchange's weighted average of North Sea Brent crude oil. All prices are free-on-board, where the buyer has to pay for shipping costs.

Saudi Aramco's most expensive oil variety is Arab Super Light and the cheapest is Arab Heavy.

OPEC oil output rose in October

OPEC oil output rose in October: Petrologistics
October 24th, 2007
Gulf Times/Doha

OPEC is already raising oil supply in response to record prices and in advance of its deal to increase output from November, a consultant who tracks tanker movements said yesterday.

OPEC’s 10 members subject to output limits, all except Iraq and Angola, are set to pump 27.5mn barrels per day, up from a revised 27.2mn bpd in September, said Conrad Gerber of Petrologistics.

The estimate indicates that OPEC may be relaxing adherence to supply curbs in response to a jump in oil prices, which hit a record high of $90.07 on Friday.
The group on September 11 formally agreed to lift production from November 1
“It’s a surprisingly large increase,” Gerber said. “The Saudis are obviously pushing out more crude in advance of the November increase.”

Saudi Arabia, OPEC’s top producer, is on course to lift supply to 8.95mn bpd from 8.88mn bpd in September, he said.

Other increases are coming from Iran, which is expected to raise output by 50,000 bpd to 3.95mn bpd and the United Arab Emirates, which is forecast to pump 2.65mn bpd, a gain of 60,000 bpd.

Overall output from the 12-member Opec is set to rise 500,000 bpd to 31.4mn bpd, Petrologistics said, on higher shipments from Iraq and Angola.

Iraqi output is expected to increase to 2.2mn bpd this month, up about 40,000 bpd from September, Gerber said.

Exports are rising because the country is exporting some Kirkuk crude from its northern fields, shipments that have remained sporadic since the US-led invasion in March 2003.

Angolan output, on a rising trend as new fields come on stream, is likely to climb to 1.75mn bpd from 1.6mn bpd in September.

Opec, source of more than a third of the world’s oil, agreed on Sept. 11 to raise output by 500,000 bpd from November 1 in a gesture to consumer nations worried by the economic impact of record prices.

According to Petrologistics, they are now pumping oil at the same level from which they started cutting production in 2006. Opec said the 10 were pumping 27.5mn bpd before the cutbacks began.

Oil prices declined yesterday after the Petrologistics estimate was released.
Oil prices extended losses amid worries that slower US economic growth could dampen global demand, dealers said.

Crude futures scaled dizzy heights last week owing to tight supplies and geopolitical tensions in the Middle East region.

Prices have fallen on fresh "concerns over economic growth and, in turn, oil demand growth," Goldman Sachs analysts said.

Additional downward momentum has come from Kurdish rebels offering Turkey a ceasefire on Monday.

– Reuters, AFP


OPEC Raising Output Ahead of Nov Output Hike
by Spencer Swartz
Oct 23, 2007

OPEC oil production is expected to rise this month by 500,000 barrels a day from September as the group's biggest producer, Saudi Arabia, steps up output ahead of OPEC's Nov. 1 deadline to begin providing markets with new supplies, tanker tracker consultant Petrologistics said Tuesday.

The 12-nation Organization of Petroleum Exporting Countries is expected to pump at a rate of 31.4 million barrels a day in October from 30.9 million barrels a day last month.

The group, excluding Iraq and Angola which aren't part of OPEC's quota system, are seen producing about 300,000 barrels a day more than in September at 27.5 million barrels a day, said Conrad Gerber, head of Geneva-based Petrologistics, which bases its figures on movements in the global tanker market.

"We're definitely seeing more production from the Gulf. Saudi Arabia is making more available," Gerber said, noting the kingdom is expected to pump at a rate of 8.95 million barrels a day this month, up 150,000 barrels from September.

Gerber said he didn't believe OPEC would produce in November at the same rate of increase being seen in October. "I don't think we'll go up as much... part of this is the big maintenance program in the United Arab Emirates," Gerber said.

Gerber said non-quota member Angola was expected to boost production by 150,000 barrels a day to 1.75 million barrels a day as new projects enter service in the West African nation.

Nigeria, making incremental headway into returning oil production sabotaged by militant attacks, was seen pumping about 50,000 barrels a day more in October at 2.25 million barrels a day.

Gulf countries Kuwait and the UAE were each seen producing 50,000 and 70,000 barrels a day more this month than in September at 2.62 million barrels a day and 2.65 million barrels a day, respectively.

The Abu Dhabi National Oil Co., or ADNOC, is scheduled to do maintenance at three major offshore oil fields that will ax crude production by 600,000 barrels a day from November for almost a month. State-run Adnoc, which pumps 95% of the UAE's oil, said in late September that it would meet all its term client commitments by "advancing the majority of liftings." Adnoc will do the maintenance, which has been planned for more than a year, at its Upper Zakum, Lower Zakum and Umm Shaif fields.

War-torn Iraq was expected to pump about 60,000 barrels a day more in October than last month at 2.2 million barrels a day, though this could be revised up in coming days, Gerber said.

© 2007 Dow Jones Newswires.

Saudi Production from IEA

From IEA's September Oil Market Report (OMR), pages 21-22

The supply estimate for Saudi Arabia in July is also revised up by 50 kb/d to 8.67 mb/d and further to 8.7 mb/d for August. Stronger exports account for the July change. This report uses crude supply (comprising exports and domestic refinery throughput) as a proxy for production for Saudi Arabia and some other OPEC producers. Hence data on the JODI system showing 8.9 mb/d output for Saudi Arabia in July include substantial deliveries into storage. This report would normally account for that extra oil in subsequent months when it is exported. Nonetheless, Saudi supply does appear to be edging higher, despite buyers generally suggesting flat-term volumes for the period through October.

Oil Rises to 6-Week High

Oil Rises to 6-Week High on Signs OPEC Will Keep Output Quotas
By Mark Shenk
Sept. 10 (Bloomberg)

Crude oil rose to a six-week high on speculation that OPEC ministers will maintain production targets when they meet tomorrow in Vienna.

Representatives from members including Iran, Kuwait and Qatar said in the past week there's no need to increase quotas that were set last year. Some Persian Gulf producers are discussing an increase, two delegates said today.

``The consensus remains that OPEC will do nothing tomorrow,'' said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. ``There was fresh discussion about a production increase today, but opposition from Iran and Venezuela is too strong for this to occur.''

Crude oil for October delivery rose 79 cents, or 1 percent, to settle at $77.49 a barrel at 2:49 p.m. on the New York Mercantile Exchange. It was the highest close since July 31. Prices are up 17 percent from a year ago. Futures touched $78.47 at 3:54 p.m. in New York, the highest intraday price since reaching a record $78.77 a barrel on Aug. 1.

`Bullish Mode'

``Technically the market is still in bullish mode,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We're unable to maintain downward momentum. There were many opportunities for the bears to take prices lower but they failed.''

A 500,000 barrel a day quota increase will be discussed during the meeting and the timing of any increase remains undecided, one of the delegates said. The second delegate said he doubted other OPEC members would agree to such an increase. Both officials declined to be identified before the start of official talks at the group's Vienna headquarters.

``There was speculation that Kuwait, Saudi Arabia and/or the Emirates would ride to the rescue of the Fed and propose that quotas be increased,'' Beutel said. ``If they raise production the Fed can forget about inflation and concentrate on fighting what may turn into a recession.''

Two Federal Reserve bank presidents suggested that the U.S. economy is weakening after the labor market shrank in August, and that the housing market shows no sign of recovery.

`We Can Wait'

``There is no reason to increase output; the market is well supplied,'' Venezuelan Oil Minister Rafael Ramirez said today in an interview. ``We can wait until December.''

Any quota change would be viewed as a surprise. All 23 oil traders and analysts in a Bloomberg survey last week said they expect OPEC to leave its collective target unchanged.

``It's odd that the Saudis are completely silent ahead of this meeting,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ``I think it is likely they will float a proposal to increase quotas, probably 500,000 to 1 million barrels a day. While I don't think it goes anywhere, it will focus the discussion on the possibility for quota increases later in the year.''

Saudi Arabian Oil Minister Ali al-Naimi declined to comment to reporters in Vienna this morning. Saudi Arabia is the world's biggest oil exporter and the most influential member of OPEC.

Why Saudi Arabia Favors Increasing OPEC's Output

Why Saudi Arabia Favors Increasing OPEC's Output...Officially
September 10, 2007 11:20:AM ET
By Tom Waterman
http://www.oilintel.com/

There's an increasing buzz surrounding the OPEC meeting in Vienna tomorrow that Saudi Arabia -- easily the most influential of cartel members, will make a pitch to increase output in the fourth quarter.

Practically every other cartel member, addicted to the petro-dollars now flowing through its coffers, does not agree. They all point out that crude oil supplies are growing and that any increase in OPEC output would collapse prices.

It's all a mirage anyway as crude supplies are building and OPEC is selling beyond output quotas, by anywhere from 650,000 to 850,000 barrels per day. So what's all the fuss?

We need to go back 10 years or so when OPEC looked at the commodities markets as just another financial instrument that would bow to its will. They never imagined that the price of oil would be set daily in New York or London, instead of Riyadh or Tehran.

Saudi Arabia understands that the explosion in electronic trading, particularly ICE in London, where regulations and oversight are virtually non-existent, speculators can control the price of oil. All it takes is enough money to force a position, and the staying power to see it through, and influence the rest of the speculative community.

There are rumors that some OPEC members, through third party agents, are in fact participating in the London Brent futures market. The suspects are Iran, Venezuela and perhaps Nigeria. What better way to push markets in a favorable direction, using the petro-dollars consumers pay.

It's not clear if Saudi Arabia participates, but it would not be surprising if all OPEC members have a role in conjunction with huge banking firms in manipulating oil prices. The financial ability of OPEC members cannot be underestimated. It would explain how prices can remain artificially high for such an extended period of time.

It also makes sense from the fundamental side. OPEC's power to influence oil prices relies on a joint commitment to restrict supplies in order to prop up prices. The problem with this method is the cartel itself. They simply cannot present a unified front when cutting production. Simply put, they cheat. Some more than others, but every OPEC member will not turn away buyers, especially with prices as high as they have been for the past two years.

There are many reasons the Saudis would favor an increase in output, not the least of which is a means to protect market-share as glut conditions approach. Saudi Arabia is concerned that it is losing ground in some of its Asian markets, and it wants to protect its current U.S. market-share, among other markets.

Through the first six months of 2007, Saudi Arabia supplied 10.7 percent of U.S. imported crude oil. They would prefer to supply about 11.5 percent, a share achieved just once in 2007, in January. In May and June, Saudi Arabia supplied 11.4 percent of U.S. imported oil -- acceptable levels.

However, two countries currently exempt from output restrictions are Iraq and OPEC's newest member -- Angola. Iraq will not have a quota until it can sustain production levels at predictable rates, which might not be for another 5 years. Nevertheless, Iraq is gradually increasing production and its share of the U.S. import market is growing. In May, Iraq supplied the U.S. with 10.6 million barrels of crude oil, or 2.4 percent of total imports. In June, Iraq supplied the U.S. with 17.2 million barrels, or 4.2 percent of total U.S. imports.

Saudi Arabia, while sustaining an 11.4 percent of the U.S. market in May and June, it supplied 4 million less barrels of crude in June than in May.

Angola, the other OPEC member that has no output quota, has been erratic in its supplies to the U.S. The range has been a low of 12.9 million barrels in February (3.8 percent) to a high of 21.4 million barrels in May, or 4.9 percent of the U.S. import market. Angola has also competed successfully for some of Saudi Arabia's Asian customer base.

This is the main reason that Sheik Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait's oil minister, had talks with Angolan officials about how they will be assigned a quota in the near future. Just as they are ready to bring new production online in early 2008, Angola does not like the timing of being assigned a quota. It seems that the prestige of becoming an OPEC member might not be worth the potential financial sacrifice.

We expect that a quota will be postponed until the second quarter of 2008, after new deepwater production is flowing and its levels have risen.

But there is another reason that Saudi Arabia might favor increasing production in the fourth quarter. Prices are too high. The Saudis always look beyond today and tomorrow. They realize that prices approaching $80 per barrel, while offering tremendous profits, also carry a risk. The risk is a weak U.S. economy that seems to heading toward a possible recession, which will mean a broad worldwide economic slowdown. Perhaps even more important than the Federal Reserve reducing interest rates by a half point would be oil prices that fall to the low $60s.

Saudi Arabia understands that current prices are artificially high, and simply making statements that there is plenty of crude oil available is not enough to overcome the powerful spec money that controls the price of oil. Something else must be done to curb the speculative direction oil is tracking.

There are other reasons to bring prices down. The political battle of wills between Iran and Saudi Arabia as each country tries to influence policies in Iraq should not be underestimated. Iran needs money as it pours support into Shiite dominated Iraq. Saudi Arabia provides cash for the Sunni contingent, trying to carve out its slice of Iraq. The Saudi vault is virtually limitless while Iran works paycheck to paycheck. Every petro-dollar Iran can grab, a certain percentage will work to extend its influence.

As Iran's influence in the region grows, it undermines the Saudi royal family, and beyond all other factors, the royal family wants to remain in power.

This is why I suspect that Saudi Arabia will try to impose its will on the OPEC meeting tomorrow. It's not clear if the Saudis have the will to demand a direction against price hawks like Iran, Venezuela, Libya and Nigeria, but the signals are that the Saudis will either nudge the cartel to announce increases in the fourth quarter. The alternative is that Saudi Arabia could open the spigots and single handedly increase worldwide supplies.

In a dangerous time, Saudi Arabia seeks to limit Iran's influence, and now may be the moment to do so.

Saudi Arabia is top oil supplier to China

Saudi Arabia is top oil supplier to China
BI-ME and Bloomberg
22 August 2007

Saudi Arabia was the top supplier of crude oil to China in July, beating Angola, Oman and Russia as the Middle Eastern country increased exports to gain from demand in the world's fastest-growing major economy.

Saudi Arabia, the world's biggest oil producer, exported 2.33 million metric tons of crude oil to China last month, about 548,677 barrels a day and 57% more than the same period in 2006, the Beijing-based Customs General Administration said today.

Angola, the second-largest supplier to China in July, shipped 2.2 million tons, a 28% increase from last year.

China's crude oil imports surged 39% to a record in July, according to customs data released earlier this month. Oil imports by the world's second-biggest energy user have tripled in the last five years as production from domestic fields failed to keep pace with demand.

Oman, Russia and Iran were among China's top five suppliers in July, shipping 1.56 million, 1.27 million and 1.24 million respectively.

Saudi Arabia was also China's biggest crude supplier in the first seven months of this year as sales from the kingdom increased by 6.8% to 14.32 million tons.

Imports from Sudan surged more than 12-fold to 1 million tons in July after China National Petroleum, the country's largest oil producer, increased output of the Dar Blend crude oil from its production-sharing field in the African nation. The field started production last August.

China imported 14.83 million tons of crude last month. Shipments in the first seven months rose 15% to 96.37 million tons.

IEA Oil Market Report July 2007

Saudi Arabian crude supply is revised up to 8.7 mb/d for May, with a modest cut to below 8.6 mb/d estimated for June. Latest available JODI (Joint Oil Data Initiative) data are backed up by upwardly revised tanker sailing data for May. Weaker earlier May estimates had been based on lower domestic refinery runs due to refinery maintenance. While higher June refinery runs are implied by lower anticipated refinery maintenance, early indications are of an offsetting cut in crude exports. June estimates, as for all the OPEC countries, remain subject to verification as more complete tanker sailing data become available. However, comments from Saudi Oil Minister Naimi in early July tended to reinforce perceptions of production around 8.6 mb/d. Nor has there been any sign of significant change in Saudi production policy for July and August, with term liftings reportedly remaining broadly stable at June levels.

Crude capacity for Saudi Arabia is seen by this report rising to 10.9 mb/d by end-2007 and 11.4 mb/d at end-2008. The Khursaniyah project is likely to start up in December 2007, reaching 500 kb/d of Arab Light capacity by 2008, alongside some 300 kb/d of gas liquids. Initial volumes of new extra light crude are also expected from the Shaybah field expansion and the Nuayyim project by the end of 2008. The two fields combined will eventually add a gross 300 kb/d to Saudi crude capacity. Capacity additions in Saudi Arabia for now are focussed on lighter/sweeter crude grades, before the next major heavy/sour increment expected from the Manifa project from 2011.

IEA Oil Market Report July 2007, pg. 20

OPEC oil output to rise in July

OPEC oil output to rise in July:
Petrologistics
Jul 25, 2007

OPEC oil output is expected to rise this month due to higher supply from members including Nigeria, Iraq and Angola, a consultant said on Wednesday.

OPEC's 10 members subject to output limits, all except Iraq and Angola, are expected to pump 26.9 million bpd, up from 26.8 million bpd in June, said Conrad Gerber, head of Petrologistics, which tracks tanker shipments.

The estimate, while showing rising supply in some OPEC countries, indicates top world exporter Saudi Arabia is keeping a cap on output in spite of a jump in oil prices towards a record high above $78 a barrel.

"There's no major opening of the taps," Gerber said. "They fear that if they opened the taps, prices would slide."

Nigeria is raising supply in July by about 100,000 bpd to 2.12 million bpd, Gerber said. The increase reflects fewer disruptions to the country's oil industry from militant attacks in the Niger Delta.

Iranian oil output is also on the increase -- climbing by 50,000 bpd to 3.95 million bpd, according to the Geneva-based company.

Overall supply from the 12-member Organization of the Petroleum Exporting Countries is set to rise 300,000 bpd to 30.7 million bpd, Petrologistics said, as Iraq and Angola pump more.

Iraqi output is on course to reach 2.08 million bpd, up from 1.94 million bpd in June, because the country is exporting some Kirkuk crude from its northern fields.

Storage tanks at the Turkish port of Ceyhan receive sporadic deliveries of Kirkuk by pipeline from Iraq's northern oilfields. Iraq sold 3 million barrels for shipment in July, the first such sale since January.

Angolan output, rising steadily as new fields off the country's coast come on stream, is on course to climb by 30,000 bpd to 1.69 million bpd in July.

By contrast, output in Saudi Arabia, OPEC's largest producer, is expected to hold steady at 8.6 million bpd, Petrologistics said.

OPEC, source of more than a third of the world's oil, agreed to curb supply by 1.7 million bpd, or about six percent, last year in two steps. The second stage took effect from February 1.

Despite July's rise from the 10 members party to the output curbs, output remains lower than when OPEC started cutting production in November. OPEC said the 10 were pumping 27.5 million bpd before the cutbacks began.

The exporter group is next scheduled to met in September to decide production policy.

Saudi production vs. OPEC quota 2001 to 2007 chart

2001 to 2007 chart of Saudi oil production vs. OPEC quota.

Saudi production versus OPEC quota

2004 to 2007 Chart of Saudi Arabia's oil production with OPEC quota.

OPEC to Maintain Its Current 30mbpd Output Level

by Adam Smallman
Dow Jones Newswires
Jun 15, 2007

The Organization of Petroleum Exporting Countries said Thursday that there was no need for the group to inject further oil supplies into the market in the face of rising demand, an implicit rebuke to the International Energy Agency's call this week for urgent new supplies from the group.

In an unusual statement well ahead of its formal policy meeting Sept. 11 in Vienna, OPEC Secretary General Abdalla Salem el-Badri said 12-member OPEC, which currently meets 35% of the world's oil consumption, would maintain its daily output of 30 million barrels a day.

"However, considerable uncertainties continue to surround world oil demand and demand for OPEC oil," he added.

"But a combination of current high inventory levels and increasing OPEC spare capacity, which is expected to reach around 15% in the second half of this year, means there are adequate supplies available to cope with any upward revisions to oil demand forecasts."

In the statement, El-Badri continued, "OPEC notes oil markets remain well supplied and market fundamentals do not require any additional supply from the Organization at this time."

"OPEC will continue to monitor developments and is prepared to help mitigate any tightness which may emerge at any future stage," he added.

Without identifying the International Energy Agency directly, the producer group's statement appears to be a response to this week's hard-hitting report by the agency that warned of the prospect of a world oil supply deficit this year due to record demand, rising project delays and a reluctance by OPEC to ship more crude over the summer.

The IEA Tuesday raised its estimated daily need for OPEC's oil this year by half a million barrels to 31 million barrels, and expressed concern about its ability to offset demand with planned capacity expansions by the end of this year of just 700,000 barrels.

With the need for OPEC crude this year set to climb 2.5 million barrels a day, the challenge to OPEC "would appear to be a key impending market dynamic," the agency said.

"We need an awful lot more crude," IEA supply expert David Fyfe said at the time. "To us, the balance looks particularly stark at the moment."

El-Badri added that the group will keep a close eye on the state of the market, but noted that oil stockpiles held by industrialized nations are comfortable.

Stocks are some 34 million barrels above their five-year average and are at a record in Europe, with oil stockpiles in the U.S. 24 million barrels above their five-year average, he said.

Gasoline stocks Stateside are generally climbing, he noted, and OPEC's output of 30 million barrels a day will help keep stocks comfortable assuming "there is no significant change in market conditions."

El-Badri also said there were expectations of increased oil output from non-OPEC producers this year, a sharp contrast with the IEA's view.

The agency said this week that oil supply growth from non-OPEC producers is set to fall below the psychologically significant 1 million barrels a day this year, thanks to project delays, field exhaustion, and maintenance programs.

It signals the end to three consecutive quarters of plus-1 million barrels-a-day growth from non-OPEC suppliers.

"We're concerned about delays in new project start ups," the agency's Fyfe said, "and to be honest, they're proliferating."

Also, the medium-term picture for Russia, the world's largest oil producer, is one of stasis, with its output reaching a plateau within two years thanks to the uncertain investment climate under President Vladimir Putin and constraints in oil services.

The agency said the country's output may climb 7% to 10.6 million barrels a day by 2010 but then slip a little over the next two years.

The IEA also revised year-on-year world oil demand growth for this year significantly higher to 2%, against its 1.8% forecast last month, pushing outright demand through 86 million barrels a day for the first time.

Though well short of the 4% demand growth seen in 2004, it is double last year's growth despite consistently high oil prices.

Saudi Arabia Curbs Asian Shipments

Oil Rises More Than $1 After Saudi Arabia Curbs Asian Shipments

By Mark Shenk
June 11 (Bloomberg)

Crude oil rose more than $1 a barrel after Saudi Arabia, the world's biggest exporter, told Asian refiners that it would curb shipments for a ninth month in July.

Saudi Aramco, the world's largest state oil company, will cut supplies of its Arab Light and Arab Heavy crude to refiners in Japan, China and South Korea by between 9.5 percent and 10 percent below their contracted volume, officials said. The Organization of Petroleum Exporting Countries last year pledged to cut supplies by 1.7 million barrels a day to support prices.

``I suspect that the Saudis are worried about rising inventories,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``They have been creamed a couple times when inventories have risen too high and they've lost control of the market.''

Crude oil for July delivery rose $1.17, or 1.8 percent, to $65.93 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices are down 8 percent from a year ago.

Brent crude oil for July settlement rose $1.01, or 1.5 percent, to $69.61 a barrel on the London-based ICE Futures exchange.

``The Saudi headlines are both good and bad news,'' said Tim Evans, an energy analyst with Citigroup Global Markets Inc. in New York. ``The Saudis reduced supplies to Asia again, which is bullish. On the other hand this is evidence that Asian demand is lousy.''

No Shortage

Iran's Oil Minister Kazem Vaziri-Hamaneh said there's no shortage of crude oil globally and the high oil price is because of low product stockpiles. Iran, OPEC's second-largest oil producer, will start gasoline rationing ``very shortly,'' he said after attending the Asia Oil and Gas Conference in Kuala Lumpur today.

The U.S. increased its criticism of Iran's stonewalling of nuclear inspectors, and the United Nations atomic agency's chief warned of a ``brewing confrontation'' over Iran's uranium enrichment program.

``I am increasingly disturbed by the current stalemate and the brewing confrontation -- a stalemate that urgently needs to be broken, and a confrontation that must be defused,'' International Atomic Energy Agency Director General Mohamed ElBaradei told diplomats today at the IAEA's Vienna offices, according to a copy of prepared remarks given to reporters.

Iran says it is enriching uranium as part of a nuclear- energy program permitted under the Non-Proliferation Treaty. The U.S. says the Iranians are disguising plans to build an atomic bomb, a violation of the accord.

Concern that the dispute over Iran's nuclear program might disrupt shipments from the country has supported prices over the past year. Attacks on oil facilities in Nigeria have curtailed shipments and also bolstered prices.

Regular gasoline at the pump, averaged nationwide, slipped 1 cent to $3.081 a gallon yesterday, according to AAA, the nation's largest motorist organization. Prices touched a record $3.227 a gallon on May 24. Retail gasoline prices are up 6.3 percent from a year ago.