Oil powers seek tonic to record prices in Jeddah

JEDDAH, Saudi Arabia - The world's top energy policymakers meet in this Red Sea city on Sunday for emergency talks on halting oil's unrelenting rally, but divided views over the cause of recent gains emerged early.

By (Reuters)

Published: Sun 22 Jun 2008, 1:35 PM

Last updated: Sun 5 Apr 2015, 1:12 PM

Saudi Arabia will try to coax its few OPEC peers who have spare production capacity to join the kingdom in pumping more barrels, although some in the cartel have been openly sceptical that raising output will rein in prices they believe are driven more by speculation than market fundamentals.

While acknowledging the divide, officials said the meeting itself showed the growing will for a global effort to tackle oil's rise, which has triggered protests from Brussels to Bangkok over record fuel costs that threaten the world's economy.

"I really believe strongly that there is a political will of oil producers and consumers to lower the price and stabilise it, otherwise they would not have come," a Saudi oil source said late on Saturday. "There is no justification for this price."

Riyadh summoned both producers and consumers, plus chief executives from big oil firms, to the meeting after an unprecedented day of trading on June 6, when oil prices surged by $11 a barrel to a new peak, the largest ever one-day rise.

The price has doubled in a year to almost $140 a barrel, despite recent efforts to slow the ascent. Light, sweet U.S. crude oil futures CLc1 closed at $134.62 on Friday.

Saudi Arabia, the world's biggest oil exporter, said in recent days it would raise output to 9.7 million barrels per day (bpd) in July, its highest rate in decades.

Major oil consumers in Asia, including the world's number-two user China, have recently raised cheap domestic fuel prices that analysts say had aided rapid demand growth, while U.S. regulators are seeking more oversight of futures market speculators.

Saudi Arabia's King Abdullah will open the meeting with a televised speech at around 1.40 p.m. (1040 GMT), followed by brief addresses from China's Vice President Xi Jinping and British Prime Minister Gordon Brown, the highest-level attendees.

The official two-hour closed-door meeting is due to wrap up with a final communique at around 4.30 p.m. (1330 GMT).

Saudi Moves

A Gulf OPEC official told Reuters on Saturday that the meeting would discuss a proposal for an output boost from other OPEC members who can bring on extra production quickly, namely United Arab Emirates and Kuwait.

Another OPEC delegate said it was not yet clear whether they would join in any output rise and the Kuwait oil minister said on Saturday it was too early to talk of an increase.

Saudi Arabia, which is has a policy of keeping a cushion of spare capacity, may also consider increasing its capacity beyond an existing goal of 12.5 million bpd by the end of next year, the source said, a move that would combat fears the holder of the world's biggest reserves may be reaching its peak.

While consumer nations have said an OPEC output rise would help to calm runaway oil markets, OPEC countries have repeatedly blamed factors including speculation, a weak dollar and political instability.

"Governments have a role in organising (oil) markets and structuring them in a way that prevents speculators behaving in a manner that has led oil prices to reach their current levels," Deputy Saudi Oil Minister Prince Abdulaziz bin Salman was quoted as saying by the Saudi-owned daily Asharq al-Awsat on Saturday.

Investment funds have pumped billions of dollars into oil and other commodities as they seek to diversify holdings and flee poorly performing asset classes.

U.S. Energy Secretary Sam Bodman welcomed any action that would add supply to the market, but added that the focus on speculation could be misplaced.

"There's no evidence we can find that speculators are driving futures prices," he said on Saturday.

U.S. regulators, under political pressure from lawmakers, have recently stepped up oversight of futures markets in an apparent effort to temper the influx of speculative funds.

"While it is clear that financial markets have seen unprecedented movement of capital into commodities in recent years, our view is that this capital is following the market upward, it is not leading that movement," he said.

And Libya's top oil official Shokri Ghanem said the market had more than enough crude.

"There's oversupply in the market. We believe the prices are high, but it's not because of supply and demand," he said, adding he did not expect concrete steps at Sunday's meeting.

"You can't get any decision on important matters in the energy market in a meeting of three hours," he said.

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