Al-Naimi painted a relaxed and generally benign picture of the state of the world's oil supplies.

His first claim was that "the fear premium, the fear from tension, fear from scarcity, fear from lack of spare capacity, all of this fear has put $10-$15 on the price of oil".

But the minister's explanations do not appear to stand up to scrutiny.

Actual physical disruptions to supply, especially bombs next to Iraqi pipelines, do little to inflate prices day-to-day.

On 18 October, oil reached a new record high of $55 a barrel. Since then there have been at least thirty armed attacks on both Iraq's oil pipelines and an increasing number against well heads.

Market tensions

"Tension" too appears a minimal concern to the market. Since 18 October there have also been planned and executed strikes in Nigeria and Norway.

Shell has delayed its annual general meeting from February 2005 to June 2005 on account of a possible reserve calculation discrepancy.

Iraq pipeline attacks have hardly
affected prices in recent weeks

Yukos, the Russian oil giant, is in turmoil following a low-priced sell off order from the government of Vladimir Putin. Meanwhile major producers Venezuela and Iran have actually suggested output cuts.

Yet, since 18 October the price of oil has not risen, but fallen by 11%.

One thing that the minister did say, that Saudi Arabia has been previously keen to avoid, was the admission that there was global "fear from lack of spare capacity". But the Saudi minister's pronouncements on this subject also failed to add up.

Firstly he announced that Saudi Arabia currently can produce 11 million barrels per day (bpd). This is news to the market. The International Energy Agency (IEA), in its November report, puts sustainable Saudi production at 9.5 million bpd.

Currently Riyadh is producing 9.6 million bpd to satisfy the increase in demand and the IEA notes that it may be able to "surge" produce another 1 million bpd for a few days in case of some kind of short term catastrophe. But currently Saudi can realistically produce 9.5 million bpd.

Or can it?

"All these numbers are hard to square," says energy banker and Saudi expert Matthew Simmons of Simmons & Co, Houston. "Even the verification of reported current production leaves a question or two.

"The data produced by the IEA on crude imports to their member countries by country of origin show no sign of any surge production ... imported into the IEA countries over last three years other than the 2nd quarter of 2003.

"Saudi Aramco's annual report of 2002 reported crude production of just under 7 million bpd. If the output is up 2.6 million bpd, it is hard to see none showing up in the IEA member countries."

Zero spare capacity

Indeed the IEA figures put the total spare capacity of all 11 countries in OPEC at just 330,000 bpd (down from 6 million bpd in 2002). Conventional Saudi spare capacity is zero.

Markets continue to be nervous
about spare capacity 

Also these figures do not take into account the amount of 'non conventional' oil that Saudi Arabia is pumping. The market really desires 'light sweet' crude which is easy to refine and cheaper to manufacture.

Instead Saudi Arabia has been pumping increasing amounts of  'sour' or 'heavy' crude at a great price reduction. The Saudi Arabian 'Arab Heavy' has been discounted by about $14 a barrel.

"If they have a genuine 1.5 million of spare capacity, it has to be heavy oil but it is hard to think Safaniyah, the prime heavy oil source, could really have this surge output," Simmons concludes. "It is a very mature field."

There are other reasons to question al-Naimi's announcements.

Firstly, taken as a percentage, the second biggest region for global demand growth is the Middle East itself.

A youthful population is, like the more vaunted China, gobbling up resources. Middle Eastern oil demand, 60% of which is from Saudi Arabia and Iran, grew at least 6.4% in 2004 and is set to accumulate another 4.8% in 2005. Only China has stronger demand growth.

Oil depletion

Then, perhaps most importantly, there is the extremely touchy subject of Saudi oil field depletion. The aging super giant Saudi fields such as Gharwar are not being replaced.

"All these numbers are hard to square. Even the verification of reported current production leaves a question or two"

Energy banker Matthew Simmons of Simmons & Co, Houston

The IEA notes in its November report that Riyadh has "increased drilling to offset anticipated decline". Much of the current steadying of  Saudi supply has been from two reasonably small new fields, Qatif and Abu Sa'fa.

These new fields produce around 600,000 bpd, another, Haradh III, is set to produce about 300,000 bpd by 2006.

An IEA report from August 2004 indicates Saudi Arabia needs up to 800,000 bpd of newly discovered oil each year just to offset declining fields and maintain its current production level.

Such figures do little to settle market nerves, whose basic cause is the lack of global spare capacity.

"Going up another one million [bpd] is possible assuming Qatif and Abu Sa'fa work and Haradh III works and there are no declines in current fields," says Simmons.

But these are a lot of "ifs" and even if those conditions are met, by 2006 Saudi Arabia will have lost about 1 million bpd to their own admitted depletion rates.

When al-Naimi was asked what his timetable was for the new ramped-up production "to 12.5 million bpd" - he even mooted 15 million bpd if needed - the minister would not answer.

Instead his cryptic reply was: "Can you tell me what demand is going to be?"

With questions surrounding so many of Saudi Arabia's energy statistics, this may not have been the answer the market wanted to hear.