‘We Are Very Happy With Oil Market Situation’

VIENNA, 10 September 2006 — Saudi Arabia and fellow OPEC countries signaled yesterday they would keep output near a 25-year high, satisfied their policy is steering oil prices lower and easing pressure on consumer economies.

The Organization of the Petroleum Exporting Countries, which meets here tomorrow, has ramped up production for over a year to fill the world’s oil tanks and guard against supply shocks.

The Saudi-driven policy has succeeded, with no demand left unmet as refiners store away OPEC crude. Oil has fallen more than $12 from its $78.40 a barrel record high of July 14, when Israeli strikes on Lebanon led to fears of a wider Middle East conflict. But at $66, it is still up $5 this year and three times the price at the start of 2002.

“OPEC in general and Saudi Arabia in particular have done their best to supply the world with what it needs energy wise so you see inventories today are very comfortable, prices are coming down and I hope no one is concerned about a shortage of supply,” said Minister of Petroleum and Mineral Resources Ali Al-Naimi on his arrival. “We are very happy with the situation.”

OPEC, which pumps a third of the world’s oil, is mindful that the Atlantic hurricane season still has several weeks to run and US Gulf of Mexico oil output has yet to recover fully from last year’s storms.

Iran’s dispute with the United Nations Security Council over its nuclear program also has potential to drive oil prices higher.

Iran’s OPEC Governor Hossein Kazempour Ardebili told students news agency ISNA the ideal oil price was $50-$60. “It seems that because prices are satisfactory for producers, even though high for consumers, OPEC will continue with its production ceiling of 28 million barrels,” he said.

Surging oil prices boosted the value of OPEC’s crude oil exports by 45 percent to a record $513 billion last year. United Arab Emirates’ Oil Minister Mohammed ibn Dhaen Al-Hamli said the current price of below $70 was acceptable for OPEC.

But there are signs that economic activity is easing in top oil consumer the United States as the housing market slows. The world’s second biggest oil consumer China has raised lending rates to try to cool its economy.

Added to that, OPEC’s own economists are forecasting demand for OPEC oil will drop 800,000 barrels per day to an average 28.3 million barrels per day as new non-OPEC production comes on stream, mainly in the Caspian. “OPEC will need to cut production next year and the debate is going to heat up,” said Roger Diwan of PFC Energy. “The September meeting will be a good gauge of positions.”

OPEC’s production ceiling for its 10 members bound by quotas, excluding Iraq, was set at 28 million bpd in July 2005. Output this year has run just below the official limit, with everyone save top exporter Saudi Arabia pumping flat out. Riyadh holds most of OPEC’s spare production capacity.

While the Kingdom has given its customers everything they want, it has steadfastly refused to discount barrels to force feed the market and depress prices. It has also avoided stipulating a target price for oil.