Saudi Arabia to boost oil output

Saudi Arabia Says It Will Boost Oil Output in June (Update5)

By Janine Zacharia

May 16 (Bloomberg) — Saudi Arabia, the world’s largest oil exporter, will increase crude production next month in response to rising demand from its customers and a request by U.S. President George W. Bush to ease the strain of record prices.

The country will raise output by 300,000 barrels a day, or 3.3 percent, to 9.45 million barrels a day in June, Saudi Oil Minister Ali al-Naimi said in Riyadh today, following a meeting between Bush and Saudi Arabia’s King Abdullah.

“The president has asked the Saudis to produce oil to meet demand,” Tony Fratto, a White House spokesman, said in Riyadh after Naimi’s remarks. “He was reassured by the king that they have increased production as the market demands.”

Crude oil futures traded in New York rose to a record about one hour after Bush landed in Saudi Arabia today. They later settled at $126.29, an increase of $2.17, or 1.7 percent, though below the day’s high after the promise to boost production. Saudi Arabia is the world’s largest oil exporter and the most influential member of OPEC.

“It’s just a token increase but it shows that the Saudis realize just how important it is for the president to not come back empty handed,” said Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Connecticut. “This is about a lot more than oil. The special relationship between the countries is at stake.”

Earlier today, before Naimi’s remarks, U.S. National Security Adviser Stephen Hadley said the Saudi policy was to supply extra oil only if customers needed it.

Saudi Increase

“On May 10 we increased our response to our customers by 300,000 barrels because they asked for it,” al-Naimi said later. “So our production for June will be 9.45 million barrels per day. This is the request of about 50 customers worldwide.”

In another sign of cooperation, Saudi Aramco, the kingdom’s state-run oil company, and U.S.-based ConocoPhillips said they will build and own a 400,000 barrel-a-day refinery in Yanbu on the Saudi Red Sea Coast, to be completed by 2013.

Oil prices have doubled in the past year on surging demand, supply disruptions in places such as Nigeria and commodity purchases by investors as a hedge against a weakening U.S. dollar. The price surge threatens to accelerate inflation and curb economic growth.

“The Saudis have engineered this to make it look like they’re doing something to help, but the market is rightfully skeptical,” said Robert Laughlin, a senior broker at MF Global Ltd. in London.

Filling the Gap

“As far as the U.S. is concerned, most of the 300,000 came from the U.S. and we responded to it on May 10,” al-Naimi said, referring to the kingdom’s production increase. Saudi Arabia is making up for output losses from other countries, such as Nigeria, Venezuela and Mexico, he said.

Production from the 13 members of the Organization of Petroleum Exporting Countries fell by about 390,000 barrels a day in April, to 31.7 million barrels a day, largely because of declines in Nigeria, according to a monthly report yesterday from OPEC’s secretariat, which cited estimates from secondary sources.

Some Nigeria production was lost because of a strike at Exxon Mobil Corp.’s facilities and because of militant attacks on Royal Dutch Shell Plc pipelines. The West African nation is usually one of the largest crude suppliers to the U.S.

Saudi Production

The same OPEC report said Saudi Arabia’s April production was 9.02 million barrels a day, down 37,000 barrels a day from a month earlier. Nigeria’s output fell by 251,000 barrels a day. The Saudi supply increase will offset declines last month, MF Global’s Laughlin said.

The Saudi oil minister said Bush was satisfied “because our response is positive. If you want to move more oil you need a buyer,” al-Naimi said at a press conference at the Saudi foreign ministry in Riyadh.

OPEC, which pumps more than 40 percent of the world’s oil, has kept output targets unchanged during its past three meetings, on March 5, Feb. 1 and Dec. 5.

“I don’t think there is a need for more oil” from OPEC, Qatari Oil Minister Abdullah al-Attiyah said in a telephone interview. “My customers aren’t asking for more oil.”

The Qatari minister said recent reports from the International Energy Agency have shown reductions in demand forecasts and added that there is “no need” for OPEC to meet before its next scheduled conference on Sept. 9.

He declined to comment on Saudi Arabia’s statement, saying it was a “sovereign” decision.

“This is good news for world oil markets and good news for President Bush, who appears to have used his personal relationship with King Abdullah to overcome Saudi reluctance to raise oil production and put downward pressure on world oil prices,” said Jim Phillips, a Middle East analyst at the Heritage Foundation in Washington.

Saudi Arabia plans to boost oil production capacity to 12.5 million barrels a day by 2009, Naimi said, reiterating previous comments.

To contact the reporters on this story: Janine Zacharia in Riyadh at

Last Updated: May 16, 2008 18:56 EDT

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