Saudi Arabia, aware that high crude oil prices will damage its interests in the long term, is paving the way for a concerted OPEC production hike to dampen overheated prices, analysts said Thursday. To put a halt to the rise in prices, which are at their highest levels since the 1991 Gulf War at more than $30 a barrel, the world's largest oil producer announced Wednesday that it favored a "suitable increase" in OPEC production.
The country's Supreme Petroleum Council said Saudi Oil Minister Ali al-Nuaimi had been instructed "to have talks with OPEC countries toward a suitable increase (in the cartel's output) to guarantee once again the balance on the market and stability of prices."
Naji Abi Aad, an oil expert at the Observatoire Mediterraneen de l'Energie in France, said, "Saudi Arabia is clearly preparing other members of OPEC for a production increase (to be agreed) at the cartel's next ministerial meeting" in Vienna on September 10.
"In this way Riyadh is sending them a message for them to arrive at this meeting with clear decisions (having been taken) by their governments in favor of a production increase," he told AFP. He said the members of the Organization of Petroleum Exporting Countries, with Saudi Arabia at the forefront, "are beginning to realize that the rise in prices will bring about in the long term a drop in demand and will encourage production in costlier regions outside the OPEC countries."
He said it will probably be Saudi Arabia that provides the bulk of any increased production because "it is the only OPEC member able to do so with a reserve capacity of some 2.5 million barrels a day." In the meantime, Abi Aad ruled out the prospects of any OPEC increase before the Vienna meeting, saying "all unilateral measures are excluded."
"The amount of the increase will be decided during the meeting, but the big problem lies in its allotment (to the various members), particularly because several countries are not in a position to produce more." "I do not think that, in any case, the increase will exceed one million barrels a day," he added.
For his part, Kuwaiti energy expert Hajjaj Bukhdor said the Saudi announcement aims to dampen the price of crude to $25 a barrel because levels of over $30 "will push consumers toward other sources of energy."
At midday Thursday, Benchmark Brent crude for October delivery was trading in London at 31.83 dollars a barrel, 15 cents lower.
In New York, light sweet crude for October delivery ended Wednesday's session at $33.32 a barrel, 58 cents higher.
Bukhdor said pushing the price lower would be a "wise decision because it would aim to assure a sort of equilibrium that keeps petroleum as the main source of energy but at a reasonable price."
"Certain OPEC countries will oppose the Saudi proposal while all those in the Gulf, including Kuwait, will support it," Bukhdor said.
Meanwhile, he said responsibility for the high prices cannot be laid entirely at the feet of OPEC, pointing the finger at the world's oil giants.
"Important mergers have recently taken place among the large oil companies, which has both reduced the number of market players while also improving their efficiency," he said. "It is in the interest of these companies that prices remain high, as they are going to invest in new oil fields, notably in (the Gulf's) continental shelf, which has enormous oil and gas reserves," he said.
For its part, the Saudi daily newspaper Okaz, with close links to the government, made quite clear its view that Saudi Arabia should be calling the shots.
The country's position as having the largest oil reserves in the world "qualifies it to play the role of the maestro who regulates the market to ensure at the same time the interest of producers and those of consumers." - (AFP)
© Agence France Presse 2000
© 2000 Mena Report (www.menareport.com )