JEDDAH, 25 May 2005 — Minister of Petroleum and Mineral Resources Ali Al-Naimi has offered a calming view of the world oil market, saying “fundamentals are healthy” for current levels of supplies and inventories.
He said Saudi Arabia did not see a need to cut current production and noted that it will maintain a spare production capacity cushion of 1.5 million to 2 million barrels per day.
In his speech to the World Affairs Council of Northern California and the Council on Foreign Relations on “Globalization and the Future of the Oil Market” on Monday, Al-Naimi said, “Saudi Arabia remains committed to achieving price stability.... It has been our policy to maintain spare capacity and to use it to help stabilize the market in times of crisis.” Al-Naimi was also quoted as saying that he “was not seeking a particular price range” to be decided at the June 15 meeting of the Organization of Petroleum Exporting Countries (OPEC). “I cannot predict what will happen (in June)... The ministers will go over the data, we will have a discussion,” he said.
Saudi Arabia is also planning to boost its production capacity to 15 million barrels per day (bpd) from the current level near 11 million bpd. “We have evaluated production capacity of 15 million barrels per day which can be implemented when dictated by market demands,” Al-Naimi said.
He said: “Our efforts to increase world energy supplies extend to the downstream. Saudi Arabia is increasing its capacity and upgrading capabilities at its existing refineries in the Kingdom and in other major markets where we have a presence. In addition, we are considering construction of new refineries inside the Kingdom. We are also looking at building new refineries in other countries, which would be configured to handle sour and heavy crudes.”
He said: “When we speak of the promise of globalization, we must remember the essential role of energy. Economic activity requires energy — energy to produce goods, to move them to markets and to sell them to consumers. Energy also provides us with many of the conveniences of modern life. Without energy, economic progress is not possible.”
He added: “The world demand for energy will grow because of globalization. The good news is that we are becoming more efficient in our use of energy, which means we won’t need as much energy to grow our economy in the future as we did in the past. And I am confident that we will produce and deliver more energy than before. We have technology and technological innovation to thank for that,” he said.
In the early 1970s, some people predicted that the world was fast approaching an era of oil scarcity. During this period when we were supposed to be running out of oil, world oil reserves continued to grow, from about 550 billion barrels in 1970 to more than 1.2 trillion barrels today. This increase is all the more remarkable given the fact that the world consumed over 800 billion barrels during this period.
In the case of Saudi Arabia, our proved reserves were estimated to be about 88 billion barrels in 1970. Today, we conservatively estimate them at more than 264 billion barrels, despite the intervening 35 years of production. Last year alone we added more than 1.5 billion barrels to reserves, Al-Naimi said.
Transparency is a key condition for oil market stability. Energy data collection and forecasting are areas where cooperation between producers and consumers can improve transparency. We must strive to do a better job in estimating demand. Efforts are already under way and are beginning to bear fruit. The International Energy Forum, dedicated to dialogue between producing and consuming countries, has been closely involved in encouraging cooperative efforts. The IEF Secretariat, based in Riyadh, can serve a useful and productive role going forward in fostering greater dialogue and cooperation between producers and consumers of oil. He said that the Joint Oil Data Initiative (JODI) is now working to complete its global database of oil statistics. When it is released this summer, the JODI database will help improve oil market data transparency where we need it most - in fast growing, developing economies.
He also said that oil has become a financial investment asset, similar to currencies, equities and bonds. Oil futures and over-the-counter markets are now attracting vast sums of money from hedge funds and institutional investors seeking to maximize returns. Their investment decisions are not necessarily made on the basis of prevailing market fundamentals, but rather on expected returns relative to alternative investments. The massive funds involved have made it more difficult to stabilize markets.
Meanwhile, oil prices rose to levels near $50 a barrel yesterday as last week’s slide attracted speculators and a refinery glitch rekindled worries over gasoline stockpiles.
US light sweet crude for July delivery rose 49 cents to $49.65 a barrel, adding to Monday’s 51 cent gain. London Brent was up43 cents at $48.80.
