Saudi Arabia has dismissed claims that it is overstating its real oil production capacity and said resulting fears and speculation are to blame for the sharp increase in crude prices.
Saudi Oil Minister Ali Al Naimi slammed “a handful of unqualified experts” for their attempts to create fear in the market by downgrading the real oil wealth and available capacity.
In an article published by the quarterly bulletin of the Riyadh-based International Energy Forum (IEF), Naimi put Saudi Arabia’s sustainable crude output capacity at 11.3 million barrels per day and said it would climb to 12.5 mbpd by the end of 2009.
He said supply fears as well as the sharp growth in the global money market and ensuing speculation, geopolitical tensions, environmental concerns, and other factors pose big challenges that should prompt energy producers and consumers to strengthen their dialogue.
“One of the main challenges is dealing with the artificial fear about the availability of oil supplies, resources and production capacity. Frankly, I believe this fear has neither a scientific nor an economic basis. Nevertheless, it is creating a perception of scarcity and is therefore helping push oil prices higher,” the minister said in the article that coincided with the meeting of more than 100 IEF oil ministers, officials and experts.
“Take for example the issue of petroleum resources: all respected petroleum engineers, geologists and upstream professional organisations believe the world has enough resources to easily meet demand for at least the next 30 years.
Naimi said such analysts had also created a false alarm about the spare capacity available in producing countries. “For example, we, in Saudi Arabia, have a current production capacity of 11.3 mbpd and 12.5 mbpd by year end 2009.
“Regardless of their motivation in lowballing their numbers, they create a fear of availability of oil in case of supply shortage, which bolster oil prices.”
Oil prices have jumped by more than 50 per cent since last summer to smash the $100-mark for the first time in late 2007. It exceeded $115 last week. The 13-nation Opec has repeatedly shrugged off calls by the United States and other key Western consumers to pump more crude on the grounds extra supplies will not bring prices down as the market has enough crude. Most Opec ministers have blamed speculation.
“Another main challenge we are facing today is the recent flood of money into the oil futures markets from various directions, including hedge funds, institutional and individual investors, traders and speculators,” said Naimi, whose country is the de facto leader of Opec and controls nearly a quarter of the world’s oil wealth.
“As an indicator of the scale of this development, I would note that paper markets have grown 45 times faster than physical markets over the last four years. Of course, there is a lot of debate about the impact of this new money and these new players in the oil market.
“Many experts believe the influx of investments into the future oil market—which is also related to other financial developments such fluctuations in the value of major currencies, the sub-prime mortgage crisis and interest rate movements – are behind the increase of oil prices during the last eight months.”
He said all these challenges should push producers and consumers to step up their contacts to find solutions.
11.3: million barrels per day is the current production capacity of Saudi Arabia
Unqualified experts create fear in market, says Naimi