Naimi says no shortage of oil; tensions to keep price high

Naimi says no shortage of oil; tensions to keep price high

Doha (Platts)--24Apr2006

Saudi Arabian oil minister Ali Naimi arrived in Qatar Monday for an
informal meeting of OPEC oil ministers and immediately dismissed Kuwait's
proposal to offer markets 2-million b/d in mainly Saudi spare capacity saying
fundamentals were sound and oil prices would remain high so long as market
tensions persist.
"Nobody is asking for additional crude. You know and I know that the
reasons for the price being where it is is not a shortage of supply," Naimi
told reporters on arrival in Doha for the 10th International Energy Forum.
"There is no shortage of supply. You know that the inventories are at the
highest level and so the fundamentals are sound but there is nothing that can
be done about the tensions that have been created in the world today and until
that tension abates, the price will continue to be high," he added.
OPEC ministers are expected to hold an informal session in Doha later
Monday ahead of their formal meeting in Caracas on June 1. Kuwaiti oil
minister Sheikh Ahmed Fahed al-Sabah Sunday suggested that OPEC offer its
spare capacity to the market to cool record high prices.
Sheikh Ahmed told reporters that the action should come from Doha at the
start of the trading week in order to calm oil market jitters over the Iranian
nuclear row and the continued supply disruption from Nigeria, where militants
have forced more than 550,000 b/d of gasoline-rich crude to be lost from
markets.
Oil prices eased slightly in the Asian morning Monday after rising to new
records Friday though Naimi and other ministers said the cost of a barrel
would remain high so long as there was a goepolitical premium, which Kuwait's
Sheikh Ahmed and others have said has added $10-$15/barrel to the price.
New York light crude oil futures settled at an all-time high on Friday of
$75.17/barrel.
Sheikh Ahmed's proposal did not win wide support among his OPEC
colleagues, here to discuss energy security with representantives of the
world's major consumers, including the US, whose energy secretary Samuel
Bodman said Monday that prices above $70/barrel were too high though there
wasn't much oil producers could do to increase supply.
OPEC's members are pumping close to full tilt at just under 30-million
b/d with only Saudi Arabia holding any spare production capacity, with a bit
of leakage from some of the producers with oil to spare. Iran is among leading
OPEC producers which has struggled to meet its quota of 4.11-million b/d with
a Platts survey in March showing the Iranians pumping below their quota.
However, Iranian oil minister Kazem Vaziri Hamaneh said in Doha that Iran
was producing at its OPEC quota and had no plans to withhold crude oil exports
in response to the growing US-led international pressure over its nuclear
program.
Sheikh Ahmed said that he would not support a formal increase in the
group's 28-million b/d ceiling because not all members could meet their
allocations.
Asked how much concern over Iran and Nigeria was adding to the price of
oil, he replied: "I think not less than $10," he told reporters on arrival in
Doha for the 10th International Energy Forum.
"I hope as members of OPEC, when we have our consulting meeting here
tomorrow, at least we maybe can offer all our extra capacity," he said. "As
Kuwait, I will support to bring the 2-million back to the market whenever
there will be a call so whenever there will be a call, the 2-mil will be
reaady."
Sheikh Ahmed, who said in Kuwait Sunday that he wanted to see prices
brought back down to the $60/barrel level, said there was no point raising
quotas when some members could not even meet their quotas.
"No I don't think we will go for increasing the ceiling for many reasons.
First, some of the membebrs have already reached maximum capacity, Kuwait
being one of them, for
that we don't have to go with something which is not logical."
He added: "The logic we have in hand ... is all of our extra capacity and
I think this is what we have to show the market, at least to reassure the
market there is supply when there will be a demand."
OPEC withdrew its offer of spare capacity of some 2-million b/d in
December saying there were no takers for the extra crude. The cartel put the
offer on the table after hurricane Katrina struck the US Gulf of Mexico last
August.
Algerian oil minister Chakib Khelil came out in support of offering the
group's spare capacity in order to cool markets.
"Psychologically it would help. Of course I would support it. It provides
psychological support for the market," Khelil told reporters on the sidelines
of the three-day conference.
But OPEC President Edmund Daukoru said the Kuwaiti proposal was not
justified because there was no refining capacity to absorb the extra crude.
"The refinery capacity is not there to cope with it anyway," Daukoru, who
is also Nigeria's oil minister, told reporters.
"In reality I don't know what impact it would have," he added.
Daukoru was asked if the Kuwaiti offer was justified, he replied:
"No.No.No."
The thin spare capacity cushion has been a recurrent theme at the
producer-consumer talks with IEA chief Claude Mandil saying the lack of
significannt global spare capacity was
a major factor behind current high oil prices.
"Spare capacity unfortunately has since late 2002 fallen below 3-4
million b/d with a number of potential supply disruptions of 2-4 million b/d
haunting the market," Mandil told a news conference on the sidelines of the
10th International Energy Forum in Doha. "The lack of spare capacity is a key
factor behind recent high oil prices," he said.
He put spare capacity at 2-million b/d, which he said was "not enough."
Mandil, who earlier said that upstream and downstream bottlenecks were
also behind oil's recent climb to new records, said that while 66 new
refineries are under construction, it was "doubtful" that all of these
projects would go ahead.
Markets, he said, will remain tight over the next three years with
little hope that additional capacity in both upstream and downstream will be
enough.

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