Saudis want to increase oil output
RIYADH, Saudi Arabia — With oil prices steadily rising in recent weeks, Saudi Arabia’s oil minister urged OPEC on Monday to raise its production ceiling by 1.5 million barrels a day when it meets on June 3.
The announcement by OPEC’s largest producer comes only days after U.S. crude oil prices briefly topped $40 a barrel and average U.S. gasoline prices have been pushing to their highest level in more than a decade. OPEC pumps about a third of the world’s oil.
“It is certain that the kingdom believes that increasing the OPEC production ceiling is essential to keep supply and demand balanced,” Saudi oil minister Ali Naimi said Monday in a statement. He said the increase should “not be less that 1.5 million barrels a day.”
Crude oil prices fell after the announcement. In morning trading in New York, oil for June delivery was down $1.33 at $38.60.
Naimi’s statement represents a shift in Saudi oil policy. In March, the kingdom was reportedly the chief advocate of a decision by the Organization of Petroleum Exporting Countries to cut production in anticipation of a lower demand for oil during the spring and summer. Several members had opposed the cut at the time.
The change came only weeks after Saudi Arabia denied a report that its government agreed with the White House to increase oil production to drive down U.S. gasoline prices in advance of the Nov. 2 election. The alleged agreement was reported in a book by Pulitzer prize-winning Washington Post journalist Bob Woodward.
An oil official in Kuwait, which also belongs to OPEC, said Naimi’s new position showed that Kuwait had been right when it opposed the March cut.
“We tried to persuade (the Saudis), but they had their own opinions,” the official said of the March decision. Speaking on condition of anonymity, he warned the market could change before June 3.
OPEC currently has an official ceiling of 23.5 million barrels a day.
Naimi said he would discuss the market situation with other OPEC members May 22-24 at the International Energy Forum in Amsterdam. OPEC’s June meeting will be held in Beirut, Lebanon.
He said recent price increases were a “major concern” to Saudi Arabia.
“We do not want to see prices rise to the level that they negatively affect the growth of the international economy or the demand for oil,” he said.
The minister said the most important reason for higher oil prices is “the market’s unwarranted fear of disruptions in supplies from some oil producing countries and regions at a time when only the kingdom and probably two or three other countries have spare production capacity.”
Market speculation is another factor, he added. He said traders were holding long-term contracts for commodities such as oil because economic growth was robust and interest rates were low.
Traders said last week they were increasingly worried about the possibility of attacks against petroleum industry targets in the Middle East at a time when supplies are tight and demand is strong.
Oil for June delivery rose as high as $40 Friday on the New York Mercantile Exchange before settling at $39.93 — the highest level in more than 13 years.
The last time the front-month futures contract settled above $40 was on Oct. 11, 1990, when oil was valued at $40.42 per barrel leading up to the Persian Gulf War. In today’s dollars, adjusting for inflation, that would be equivalent to $56.83, according to the Energy Department.
At their meeting in Vienna in March, OPEC members decided to cut production by 1 million barrels a day, despite warnings by analysts that oil prices would surge.