/ 16 June 2008

Saudi Arabia to raise crude production to ease prices

Saudi Arabia, Opec’s largest oil producer, moved to take some of the heat out of rising fuel prices on Sunday with plans to increase production next month.

The Saudi move followed a weekend of talks between the United Nations Secretary General, Ban Ki-moon; the Saudi ruler, King Abdullah, and the country’s Oil Minister Ali al-Naimi.

The news is expected to help depress the crude oil price, which hit a record high of $139 a barrel last week, ahead of an unprecedented meeting of oil producers and importers to be held in the Red Sea port of Jeddah on Sunday.

Hopes that other Opec countries will also increase production, however, are not high. Opec’s president, Chakib Khelil, said recently that no new production targets would be set until its next meeting, in Vienna on September 9. Saudi Arabia tends to set the overall tone for such meetings but is the only country within the group that can easily increase production.

The soaring oil price, which jumped nearly $11 in its largest one-day movement just over a week ago, has sparked furious protests across the world.

Spanish consumers found supermarket shelves empty last week as angry lorry drivers blockaded many major roads in protest. French haulage unions have called for a day of ”go-slow” protests across the country today, while there have also been protests in South America and Indonesia. In Britain the situation has been exacerbated by the Shell tanker drivers’ strike, which has caused shortages and panic-buying.

After his meeting with the Saudis Ban said King Abdullah ”acknowledged that the oil prices are abnormally high due to speculative factors and some other national government policies. He is willing to do what he can to [bring] the price of oil to adequate levels.” From next month Saudi Arabia will increase output to 9,7-million barrels a day, up from the 9,45-million it is currently producing.

That is the country’s second production increase in as many months and has brought output to its highest level in almost three years. It has already increased supply by 300 000 barrels a day to meet demand from buyers, primarily in the United States.

Oil analysts, however, reckon the country could increase supply by up to tow million barrels a day if it wanted. – guardian.co.uk