Bush calls on OPEC to increase oil supply

January 16, 2008 - US President George W. Bush used a visit to OPEC's top producer Saudi Arabia January 15 to call on the oil group to boost production when it next meets February 1 in Vienna, warning that if high oil prices damaged the economy of the world's biggest consumer there would be less demand for OPEC oil.

"I would like for [OPEC] to realize that high energy prices affect the economies of consuming nations. And that if these economies weaken, those economies will eventually be buying fewer barrels of oil," Bush said.

But, "having said that," Bush continued, "there is not a lot of excess capacity in the marketplace. What's happened is...that demand for energy has outstripped new supply. And that's why there's high price."

Bush said he fully understood the impact on the US consumer, adding that he would make the point to Saudi Arabia's King Abdullah that "when consumers have less purchasing power because of high prices of gasoline-in other words, when it affects their families-it could cause this economy to slow down. If the economy slows down, there will be less barrels of oil purchased."

Bush said he recognized that oil was not something that could be produced simply by turning a tap. "It requires investment, exploration, a lot of capital," he said. "I talked to His Majesty early on in my presidency in the hopes that they would explore for new fields; they have. They've increased their capacity. But in the meantime, demand has gone up quite substantially."

"I hope that OPEC, if possible, understands that if they could put more supply on the market it would be helpful." He acknowledged, however, that "a lot of these oil-producing countries are full out."

Saudi oil minister Ali Naimi said that while Saudi Arabia did not wish to see any country suffer economic recession, the price of oil was not the only factor affecting the global economy.

"We increase or decrease production based on the conditions of the international oil market. Each time OPEC members meet, they review market conditions and act accordingly...," Naimi said, quoted by the official Saudi Press Agency. "We are in constant communication not only within OPEC but also with the main consumers," he added.

"OPEC in its forthcoming meeting will of course look at all the available data such as the projected demand, the supply available and particularly the world inventory levels and decide accordingly," Naimi said.

Saudi Arabia, as a producing country, always sought to maintain "healthy market fundamentals," Naimi said.

"Our main concern is to ensure that the oil market does not suffer from cycles of volatility. We would like it to remain stable as much as possible because it is not in our interest for the market to be unstable and we don't want there to be sharp movements up or down either in price or stock levels."

Naimi's remarks appeared to suggest that the OPEC powerhouse was not necessarily ready to push for an increase in the group's production without being certain that such action was needed.

A week ago, on January 7, Naimi was quoted by the Saudi-owned Al-Hayat newspaper as saying oil prices were determined by the market and not by producers, his first comment after prices climbed above $100/barrel.

Talking to reporters in Riyadh January 15, Naimi assured consumers the kingdom would maintain spare capacity of 2 million b/d but said it was important to make sure the market did not suffer from excessively sharp movements of price or stock levels.

"Those looking at inventory levels need to take into consideration seasonal gyrations," he said, referring to the tendency for stocks to be drawn during the high-demand winter quarters and to be built during the spring and summer months when demand is usually lower.

"The kingdom strives always to maintain a stable oil market as much as possible... The kingdom does not work alone but with other oil producing countries, inside and outside OPEC," Naimi said.

"And I think that we have an excellent record in this endeavor. I also believe that we have met virtually all the external challenges," he said, adding that these challenges included natural disasters and disturbances in producing countries.

"We and other countries moved at the appropriate time to prevent a crisis in the global oil market. Therefore our main concern is to maintain exports that meet demand and prevent volatility in the petroleum market."

Naimi said nobody wanted to see a recession in the US and that producers' efforts were designed to ensure that economic growth continued in all countries, in particular the world's leading consumer.

US inventories, despite having fallen, remain above 2004 levels, he said.

"What you see now in the fall of US stocks is the effect of the first quarter of the year, which is the usual and normal time for stocks to be drawn down," Naimi said. "I believe US stocks are still within the five-year average...and we would like US inventories to remain at a healthy level where they are not too high or too low."

Saudi Arabia seek Stable market

Saudi Arabia, home to a quarter of global crude oil reserves, wanted a stable market, Naimi said. v "The kingdom stands as a force for moderation in petroleum markets and will continue with this policy, and is working very hard to ensure that the international market is well supplied and balanced. And in order to achieve that, we continue to maintain spare production capacity of around 2 million b/d which can be used to meet unexpected demand," he said.

The kingdom, he added, was spending more than $90 billion on a five-year investment program covering oil and gas production capacity expansion, refining and other energy projects.

Bush said most of the US' oil imports came from Canada and Mexico. In fact, according to US Department of Energy data released January 15, Saudi Arabia was the US' second-biggest oil supplier after Canada in November and for the first 11 months of 2007.

The US imported an average 1.53 million b/d of Saudi crude in November and an average 1.432 million b/d between January and November, data from the Energy Information Administration, statistics arm of the DOE, showed.

Saudi Arabia was also the US' second-biggest supplier of both crude and refined products after Canada in November, when volumes averaged 1.609 million b/d, and third biggest behind Mexico for the January-November period with an average 1.47 million b/d.

Bush's visit to Saudi Arabia will be followed later this week by the arrival in Riyadh of his energy secretary Samuel Bodman who, according to the White House late last week, will meet with Naimi January 17 to "discuss US-Saudi Arabia energy cooperation and efforts to increase global energy security."

When OPEC last met in early December in the UAE capital Abu Dhabi, crude prices had yet to breach the symbolic $100/b level. That crucial marker was breached in early January when US light crude futures climbed to $100.09/b in New York.

Prices have since fallen back by several dollars. February crude futures on the New York Mercantile Exchange January 15 settled $2.30 lower at $91.90/b as weak US economic data unraveled the previous day's gains.

OPEC's current president, Algerian oil minister Chakib Khelil, said January 15 that while factors such as the weak US dollar and geopolitics were supporting prices, the market also was keeping a close eye on the US economic problems.

"The market is in the process of taking into account that there is a slowdown in growth in the US which will be followed by Japan and possibly in other countries," Khelil said in Algiers. "For the moment, we are not sure if there is going to be a recession."

Oil prices, Khelil said, were likely to remain around current levels through the remainder of the first three months of 2008. Asked by reporters how he saw oil prices moving, Khelil said: "Probably at the same level this quarter."

OPEC's output target as of January 1 is 29.673 million b/d, including allocations of 1.9 million b/d for Angola, which joined the group in January 2007, and 520,000 b/d for Ecuador, which resumed its membership in November.

A Platts survey earlier this week estimated OPEC's total output-including that of Iraq, which does not participate in OPEC output pacts-at 32.03 million b/d in December. OPEC-12 output, excluding volumes from Iraq, was estimated at 29.73 million b/d, 57,000 b/d above the January 1 target.