Saudi Arabia's Naimi does not see new oil price spike

By Kate Dourian, Geoff King, Takeo Kumagai, with Thomas Hogue and Anita Nugraha in Jakarta


February 23, 2011 - Saudi Arabian oil minister Ali Naimi said February 22 he does not expect the oil price spike of 2008 to be repeated and that recent market volatility is unlikely to last because oil markets are well supplied, spare capacity is plentiful and there is no shortage.


But the head of the International Energy Agency, Nobuo Tanaka, said he feared that even a small disruption in supply might lead to a price spike in what he called a tight market.


Naimi and Tanaka were speaking at a joint news conference with OPEC Secretary General Abdalla el-Badri at the end of a meeting of oil producing and consuming countries, known as the International Energy Forum, in Riyadh, and as unrest in OPEC member Libya roiled the oil markets.


Naimi said that in the event of a supply disruption Saudi Arabia and OPEC would be ready to step in and use their spare capacity to balance markets.

Naimi put global spare capacity at 5-6 million b/d, of which 4 million b/d is held by Saudi Arabia.

He gave three reasons why he did not see a repeat of 2008, when oil prices soared above $147/b. OPEC insisted at the time that there was no shortage of oil and that the rocketing prices were due less to high demand than to excessive speculative activity.

"Today, supply and demand are equal. There is no shortage of supply and inventories are comfortable," he said. "Right now there is absolutely no shortage of supply. Should supply diminish because of any disruption anywhere in the world, producing countries like Saudi Arabia and OPEC will be ready to meet that shortage."

Benchmark ICE Brent crude prices, already having climbed above $100/b in recent weeks on spreading political tension in the Middle East and North Africa, rose above $108/b this week in response to the Libyan unrest.

"This volatility we see will not result in any shortage. Concern will be short term and will not have any long-range effect," Naimi said.

Naimi said he still considered an oil price range of $70-$80/b to be fair to producers, consumers and oil companies.

"We think $70 as a floor is the price that will allow investment in difficult oil such as oil sands, presalt and other non conventional oil, which is expensive, as well as in production of ethanol, solar and wind power. All these need a price that will bring returns," Naimi said.

"But $80/b as a ceiling, we think, is fair for investors who want to invest and make a profit. Otherwise supply will fall," Naimi said, reaffirming the kingdom's preference for a lower oil price than currently prevails.

Naimi was asked whether he had any clarity as to the situation in Libya, which has been gripped by a week of unrest as the regime of Moammar Qadhafi responded violently to protests.

"Whatever is happening in Libya, disruption to oil markets has not happened. When we see a shortage in supply, we will rectify that immediately," he said. "We have the means, we have the capacity, we have the crude available."

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