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Summit of Major Oil Producers and Consumers Meet in Jeddah to Discuss Oil Prices and the Role of Speculators

Summit to discuss oil road map

Arab News Team  

Sunday 22 June 2008 (17 Jumada al-Thani 1429)

JEDDAH:

King Abdullah holds talks with Chinese Vice President Xi Jinping in Jeddah on Saturday. Xi praised the king for taking the initiative to hold a meeting of oil producers and consumers and for Saudi Arabia’s efforts to stabilize world market. (SPA, 6/22/08) .

 

Saudi Arabia has reiterated its resolve to stabilize the world oil market in cooperation with oil producing and consuming nations.

“What we endeavor for is to stabilize oil prices,” Deputy Minister of Petroleum and Mineral Resources Prince Abdul Aziz Bin Salman told a crowded press conference at the Jeddah Hilton last night.

Officials from around the world, including British Prime Minister Gordon Brown, US Energy Secretary Samuel Bodman and Indian Finance Minister P. Chidambaram, along with the chief executives of major oil companies, are meeting today to discuss the issue of oil prices and the role of speculators.

Custodian of the Two Holy Mosques King Abdullah called the meeting on short notice and the organizing committee headed by Prince Abdul Aziz finalized the arrangements for incoming high-level overseas ministerial and other delegations.

He characterized the oil price issue as complicated.

“This is a multifaceted and multidimensional problem and we need a collective will to address the issue,” the minister added.

The minister referred at length to a background paper that has been prepared for today’s oil summit. “A lot of leg work has already been done by three most important institutions — OPEC, the International Energy Agency and the International Energy Fund. This paper was prepared on Monday and circulated to all parties concerned on Tuesday.”

He refused to divulge the details of the paper saying: “It charts out a road map to bring stability to the oil market.”

In response to a question about the blame game that is currently under way between the oil producers and consumers, he said: “This meeting is proof of the fact that we are saying enough is enough.”

He admitted that there were expectations from the meeting, but cautioned that one has to be realistic.

“If the oil prices do not come down the day after tomorrow, it doesn’t mean that this conference has failed. We are looking at the complete picture and trying to come up with long-term solutions. We are trying to draw a collective approach to address the issue.”

Prince Abdul Aziz said the world should not question Saudi Arabia’s motives, but rather look at its actions.

The response to the meeting is phenomenal and out of the 38 countries invited we have participation from 36 countries, in addition to seven international organizations. “There is no company big or small dealing in oil that is not represented here.

“We owe it to the world, we owe it to the hungry people of the world and we owe it to the most deprived people of the planet.

It is our wish that in this interdependent world everybody should play his or her part,” he added.

The working paper calls for improving transparency and regulation of financial market by monitoring index fund activity.

Asked whether there would be announcement of further oil output increase by Saudi Arabia or other OPEC members, the minister said: “Whether others are willing to do it or not is not for my department to answer, but the Kingdom will do everything that it takes to calm the market in close consultations with other members.”

The Kingdom has serious initiatives, he said, but those are not focused on prices alone. “We are more focused on the long-term, optimal revenue for Saudi Arabia,” he said.

Asserting that there are no easy solutions to the oil price issue, Prince Abdul Aziz said the working paper under discussion today would be “diverse and tough”.

Asked what Saudi Arabia considers as the right price of oil, the minister said: “We prefer oil prices to be stable. We focus on long-term optimal oil revenues. We want to prolong the life of our petroleum resources.”

— K.S. Ramkumar, Siraj Wahab and Samir Al-Sa'adi contributed to the report

Bodman calls for hike in oil output

Khalil Hanware | Arab News  

Sunday 22 June 2008 (17 Jumada al-Thani 1429) 

JEDDAH:

Oil producers must increase production to ease pain from record fuel prices, said US Energy Secretary Sam Bodman, who is visiting the Kingdom to attend a Saudi-hosted emergency meeting, yesterday.

Bodman also blamed tight supplies for fueling a rally, which lifted oil prices close to $140 a barrel last week.

“World oil demand has increased significantly in the last few years despite higher prices. China, India, and the Middle East are the largest contributors to this growth as they consume more energy to fuel economic growth,” he said.

He further called on global producers to increase production. “Without a sustained increase in global production capacity, markets are expected to remain very tight... Anything that will add supply to the market is important,” he said.

“While increases in near term oil production are welcome and necessary, fundamentally the market needs to see investment in increasing the longer term production capability... The world faces an extraordinary time that, in my view, demands responsible action from both consuming and producing nations,” he said.

Saudi Arabia already has vowed to boost supply next month by 200,000 barrels per day (bpd).

Bodman said this would help lessen the pressure on oil prices in the short run and that other OPEC countries could follow suit according to their capacity to help ease prices.

Bodman said current surplus production capacity is below historic levels and that prices respond when surplus capacity is low, particularly when geopolitical turmoil or other events such as hurricanes threaten supply.

“Market fundamentals show us that production has not kept pace with growing demand for oil, resulting in increasing prices and increasingly volatile prices,” Bodman told reporters ahead of today’s summit that will bring together consuming and producing nations at the Jeddah Hilton to address the global energy crisis.

Between 1973 and 1985, OPEC (Organization of Petroleum Exporting Countries) production fell dramatically, squeezed by anemic demand growth and a strong supply response to higher oil prices by non-OPEC producers. As a result, the net call on OPEC fell by 11 million barrels a day over the period.

In contrast, since 2003, world oil demand has continued to rise, while there has been little supply response from non-OPEC producers. In addition, OPEC production has remained largely flat.

For these reasons, the market has seen a rising call on the key OPEC countries and other major reserve-rich regions. “The market needs confidence that supply will be forthcoming,” said Bodman.

He added that prices would soar higher if more oil was not forthcoming. “In the absence of any additional crude supply, for every one percent of crude demand, we will expect a 20 percent increase in price in order to balance the market... These are very high oil prices. They have a severe impact certainly on the families of the United States, but also on the families of other countries as well,” he said. He added that insufficient oil production, not financial speculation, was driving soaring crude prices.

“There is no evidence that we can find that speculators are driving futures prices for oil,” he said, adding that the commodities markets have experienced a huge influx of money from financial investors in recent years, but they have been following the market upward rather than driving the increase in the price of oil.

Many countries around the world have experienced social unrest as people are angry that rising fuel prices have driven significant increases in the cost of food and other basic goods.

According to the International Energy Agency, rising demand in the developing world has coincided with historically low levels of spare oil production capacity, which fell below two million barrels per day among OPEC countries in May for the first time since the third quarter of 2006.

Bodman made clear that the responsibility for reducing oil prices did not simply fall on the shoulders of producing nations, saying consuming countries must increase energy efficiency and invest in the development of alternative fuels.

Bodman also called for a reduction in fuel subsidies by various countries.

— With input from agencies