Top world oil exporter Saudi Arabia will work to keep spare supply capacity of at least 1.5 million barrels per day, but its ability to curb price rises is now limited, Saudi Oil Minister Ali al-Naimi said.
US President George Bush, who will meet Saudi Arabia's de facto leader Crown Prince Abd Allah on Monday, has said he is seeking a clear answer from the Saudi government about the size of its spare oil production capacity.
Al-Naimi reiterated on Thursday that the kingdom - which controls the bulk of the world's spare production capacity - aimed to maintain a cushion of 1.5 to 2 million barrels per day.
"Saudi Arabia has increased its production to meet customers' demand to the tune of 9.5 million barrels per day, increased its production capacity to 11 million bpd and will increase capacity to 12.5 million bpd by early 2009," al-Naimi told an oil conference in Paris.
"If need be, Saudi Arabia is ready to continue its capacity expansion to 15 million bpd and sustain such capacity for over 50 years," he added.
Rising world oil demand, especially in Asia's emerging economies, has strained international supplies to the limit, leaving little spare production capacity, and pushing prices to record highs.
Opec members, especially Saudi Arabia, have raised production to try and build a stock buffer for higher demand expected at the end of this year.
"In the short-term, we intend to continue doing our best to stabilise the market by increasing our exports according to the needs of our customers," al-Naimi said.
Industry sources have said that the kingdom will raise supplies to its term customers in Asia and the major international oil companies by 500,000 bpd next month, putting it near 10 million bpd for the first time since 1980.
Al-Naimi said the ability of the kingdom and other Opec producers to control price rises had been weakened by the growing influence of big-money funds on prices and refinery bottlenecks in consuming nations.
US crude prices earlier this month hit record levels above $58 a barrel, and on Thursday were trading above $53.
"Despite our best efforts, Saudi Arabia and OPEC have had little ability to curb the rapid rise in prices"
Saudi Oil Minister
"Despite our best efforts, Saudi Arabia and Opec have had little ability to curb the rapid rise in prices," he said.
"Oil ... is attracting vast sums of money from hedge funds and institutional investors seeking to maximise returns and diversify their portfolios," he said.
Al-Naimi said that oil market fundamentals were sound, and that rising interest rates would draw investors out of energy markets and into other asset classes.
"As soon as these interest rates move they will probably go into better financial instruments such as bonds," he said.
A lack of refining capacity in consuming nations, especially to meet tighter environmental fuel specifications, was also contributing to price volatlity, al-Naimi said.
"Petroleum product markets are having a significant influence on crude prices at the global level, more so than at any time before," he said.
"Robust demand growth in the last few years, and difficulty in building new refineries in some markets, have led to a rapid increase in refined product trade," al-Naimi said.
Al-Naimi spelt out Saudi Arabia's capacity expansion plans in unusual detail.
In 2004, he said, Saudi oil company Saudi Aramco brought on stream two crude oil increments in the Abu Safah and Qatif fields, with a combined capacity of 800,000 barrels per day.
"Petroleum product markets are having a significant influence on crude prices at the global level, more so than at any time before"
Saudi Oil Minister
In mid-2006, another increment of 300,000 bpd of Arabian Light crude is scheduled to flow from the Harada field, al-Naimi said.
In addition, he said the Khursaniya field development was planned for 2007 with a capacity of 500,000 bpd of Arabian Light.
Plans were also in place for expansions in the Shayba and Central Arabian fields in 2008, which would provide another 300,000 bpd of lighter crude, and a huge increment of 1.2 million bpd of Arabian Light crude was scheduled to be commissioned in the Khurais field in 2009, al-Naimi said.