Oil Crisis - Consumers and Producers Talks

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The 2008 Energy Crisis: Kingdom Calls for Producers and Consumers to Talk

Editor's Note:

Crude oil on world markets continues on a meteoric rise -- NYMex futures more than doubling since June 2007 and up 14 percent in just two days last week -- and the average gas price at the pump topped $4.00 in the United States today. American leaders are scrambling for solutions to the 2008 energy crisis but keep coming up empty.

Congress examines market manipulation. The American Treasury Secretary floats the notion of dollar-stabilizing intervention. President Bush returns from meetings in Saudi Arabia in January and May -- his first and second visits to the Kingdom in his two terms -- and despite the obvious crush of regional security issues to address, the headlines are consumed with talk of failure on the oil production increase front. Meanwhile the price climb continues to be fueled by actions beyond the apparent control of America and other consuming nations. Such was the European Central Bank President's suggestion that interest rates could be boosted to counter inflation, a dollar weakening move that drove crude prices higher on Thursday and an Israeli minister's "unavoidable" Iran war-talk that pumped up prices on Friday.

We are also mindful of the position of producers that there's already enough crude available on the market. OPEC President Khelil, Algeria's oil minister, told SUSRIS last month that "supply and demand are in equilibrium" and that "increasing production is not going to reduce the price."

It was against this backdrop that the Saudi Council of Ministers concluded on Monday that "the current increase in oil prices is unjustifiable in terms of oil data and market fundamentals" and called for a "meeting involving representatives from producing and consuming countries and companies active in the production, export and sales of petroleum to take into consideration the high prices, their causes, and how to objectively deal with them."

This SUSRIS Special Report provides a perspective on the supply and demand for crude oil in the world and a wrap up of reporting on the Saudi call for consuming and producing nations and commercial interests to confer on the crisis and develop solutions. It also provides links to some the voluminous reference materials on the SUSRIS web site addressing the energy component of the US-Saudi relationship.

Perspective..

"Saudi Arabia, which benefited immensely from record oil prices last year, has sent signals in the past two weeks that it is committed to keeping oil at around $50 a barrel -- down $27 a barrel from the summer peak that shook consumers across the developed world.."

Saudi Officials Seek to Temper the Price of Oil - Jad Mouawad, New York Times
January 28, 2007

"The "oil crisis" of 2004 is one more sign that a Bush administration that once hoped to transform the sources of instability in the Middle East is instead retrenching to a messier version of the old status quo. Desperate to slow the recent rise in oil prices, finance ministers from the Group of Eight industrialized countries last weekend demanded that OPEC countries raise their production, arguing in their communiquï¿½ that "lower oil prices would be of benefit to the whole world economy.".."

Homemade Oil Crisis - David Ignatius, The Washington Post
May 25, 2004

"Events since September 11th have reinforced the view that a defining feature of the 21st century is global interdependence. And nowhere in the market is it more evident than in relations between the Kingdom and the United States. Interdependent relations always suffer from stress. The genius of diplomacy and the strength of long-term relations are the willingness and ability of the parties to manage and solve problems cooperatively as they arise. Every relationship is imperfect by any number of measures but our mutual willingness to persevere over a long and somewhat difficult period suggests that both sides view the effort as critical and strategically important. That effort begins with dialogue.."

Brent Scowcroft
CSIS/USSABC Energy Conference
April 27, 2004

"The good news is that generally we don't have to worry about disruptions where people simply cannot supply enough oil or other energy commodities to meet demand but that doesn't mean that there aren't a lot of challenges.. ..We've been very pleased to join Saudi Crown Prince Abdullah's call for enhancing the producer-consumer dialogues that have taken place over the last couple of years, and I think Minister, you're going to see Secretary Abraham at the IEF in Amsterdam where the continuation of that producer-consumer dialogue will take place.."

Kyle McSlarrow
Deputy Energy Secretary
April 27, 2004

"..rise is driven by demand, particularly the dramatic growth in demand in China, which has increased its imports of oil by 400% in just 4 years, and is reinforced by concern about supply security.. ..continuity of supply has been threatened by disruptions - including Iraq, Nigeria and Venezuela. There has been no shortage, but there has been a fear that a shortage would develop.."

BP Group Chief Executive Lord Browne
Dec 10, 2004

"Saudi Aramco, the national oil company of Saudi Arabia, is a true example of the capability of national oil companies to provide the world with the needed oil. Its performance during the last two decades speaks volumes. Saudi Aramco was able to increase production after the Iraq invasion in Kuwait in August 1990, from 5.4mn b/d to 8.6mn b/d within three months. It was able to advance its production capacity on a sustainable basis from 7 to 10mn b/d during the first half of the 1990s, a permanent increase of some 3mn b/d, all the while finding new reserves to replace its production.."

Ali al Naimi, Saudi Minister of Petroleum and Mineral Resources
Remarks at Chatham House, London
Nov 29, 2004

Reporting..

Oil kingpin Saudi calls for talks with consumer countries - AFP
"..Oil kingpin Saudi Arabia called on Monday for talks with consumer nations on soaring world prices and reiterated its readiness to meet any increase in demand. The Saudi call was swiftly welcomed by the United States which has expressed mounting concern about the impact of high energy costs on the world economy. At a meeting chaired by King Abdullah, the Saudi cabinet restated its view that the leap in prices that saw New York's benchmark contract hit a record 138.54 dollars on Friday was unjustified by fundamentals. But it added that it had asked Oil Minister Ali al-Naimi to "convene a meeting soon of representatives of producer and consumer nations and firms operating in the production, export and trading of oil to discuss the jump in prices, its causes and how to deal with it objectively".." [more]

Saudi calls for talks; oil experts see no change - AP
"..Saudi Arabia will call for a summit between oil producing countries and consumer states to discuss soaring energy prices.. ..The kingdom will also work with OPEC to "guarantee the availability of oil supplies now and in the future,".. ..the kingdom has informed "all oil companies it deals with as well as countries that consume oil that (the kingdom) is ready to provide them with any additional oil they need.".. .."The Saudi Cabinet has instructed Oil Minister Ali al-Naimi to call for a meeting in the near future that will include representatives of oil-producing countries, consumers and companies that work in extracting, exporting and selling oil to look into the price hike, its causes and how to deal with it," .." [more]

Saudi Arabia Calls for Summit on Energy Costs - NY Times
"..Saudi Arabia, the worldï¿½s biggest oil exporter, said on Monday that it wanted to convene an energy summit of producers and consumers to focus on ï¿½how to objectively dealï¿½ with high prices.. ..Following a cabinet meeting chaired by King Abdullah, the Saudi government said, ï¿½the increase in prices isnï¿½t justified in terms of market fundamentals,ï¿½ according to a statement released by the official Saudi Press Agency.. ..Few analysts expect a concerted effort by producers and consumers to push down prices. Still, the Saudi statement, while vague, helped prick the momentum of last week, when oil prices gained an unprecedented $16 a barrel over two days of frantic trading. Oil futures fell $4.19 on Monday to close at $134.35 a barrel.".. ..some experts say that the Saudis are concerned about the impact of high prices on the American economy, the worldï¿½s largest consumer of oil, and the growth in alternative fuels.." [more]

Paulson says oil prices a 'problem', welcomes Saudi call - AFP
"..US Treasury Secretary Henry Paulson said Monday that surging world crude oil prices were a "problem" and welcomed a call by oil-rich Saudi Arabia for talks with energy-hungry consumer nations.. ..Paulson spoke after Saudi Arabia called for talks with consumer nations on soaring world prices and reiterated its readiness to meet any increase in demand as a key oil-producing nation.." [more]

Oil Falls as Saudi Arabia Calls for Producer-Consumer Meeting - Bloomberg
Crude oil fell more than $4 a barrel in New York after Saudi Arabia's oil minister, Ali al-Naimi, called for a meeting of oil producing and consuming nations to discuss how to deal with record prices. "The increase in prices isn't justified in terms of market fundamentals,'' the Saudi government said today in a statement distributed by the Saudi Press Agency. Oil climbed $10.75 on June 6, its biggest gain ever, because of a weakening dollar and threats of supply disruptions.." [more]

Gas Prices Rise Higher, Hit $4 Average - WashingtonPost
"..After breaking the $4-a-gallon barrier during the weekend, nationwide gasoline prices continued their climb today, rising to $4.02 a gallon on average for regular, as crude oil prices fell only slightly after last Friday's record surge. Gasoline prices are now 93 cents a gallon more than a year ago, and the price of diesel, which fuels the nation's trucking fleet, stood this morning at $4.77 a gallon, $1.87 more than this time last year. "The fear here is that we've crossed a Rubicon," said John Townsend, spokesman for AAA. "Normally prices plateau after Memorial Day.. ..But we still have this lag between the price of gasoline and the price of crude. We don't know when these prices will come down. I don't think we're going to get much relief this summer.".." [more]

Related Material:

U.S.-Saudi Relations and Global Energy Security Conference:

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ï¿½ 2008
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