Saudi Arabia was responding to the worries of governments and consumers about surging oil prices with its proposal to raise output but its move did not win immediate support from other OPEC countries.
Flexing its muscles as the world’s biggest oil producer, the kingdom proposed to boost OPEC production by more than 2.0 million barrels a day, provoking a mixed reaction from within the cartel.
The ministers from the Organisation of Petroleum Exporting Countries (OPEC) were meeting in Amsterdam on Saturday for an informal meeting in the sidelines of a world energy summit amid mounting calls for urgent action to bring down oil prices.
“The decision will be made in Beirut,” said OPEC President Purnomo Yusgiantoro, referring to the cartel’s next official meeting in the Lebanese capital on 3 June.
Oil price rise
Yusgiantoro, who is also Indonesia’s energy minister, told reporters the OPEC ministers were “deeply concerned” by the sharp rise in the price of oil.
Despite such concerns, the other OPEC members made clear that they were not prepared to make an official decision to raise production in an informal setting.
Some countries seemed annoyed at the fait acompli put to them by Saudi Arabia, the cartel’s most influential member.
“It (the Saudi proposal) is a good step. Will it be enough to change the anticipations of the market and to introduce a real clear price reduction? We need more than $1, which was the reaction of the market”Claude Mandil,
Head of The International Energy Agency
On Friday, the proposal from the kingdom’s Oil Minister Ali al-Naimi to raise production sent oil prices sliding on global markets even though some people voiced surprise the reaction was not stronger still.
New York’s benchmark contract, light sweet crude for delivery in July, fell nearly $1, dropping below the psychologically important $40 level.
While the Saudi offer did not win immediate support from the rest of OPEC, Naimi stood firm by his proposal.
Global economic recovery
“Never doubt what Saudi Arabia says,” he told journalists.
Big oil consuming countries have been pressuring OPEC in the run-up to the meeting to make more crude available to markets so that the price of oil does not thwart the fragile global economic recovery.
OPEC president Yusgiantoro said the ministers examined the proposals from Riyadh “in line with OPEC’s commitment to do whatever we can to ensure market stability and to ensure adequate supply to support world economic growth”.
According to the cartel the current high crude oil price regime is the result of a combination of several factors such as gasoline bottlenecks and increased tensions in the Middle East and Iraq.
“Never doubt what Saudi Arabia says”Ali al-Naimi,
Saudi oil minister
International Energy Agency head Claude Mandil, whose organisation represents the interests of big oil consuming nations, gave a cautious response to the Saudi proposal.
“It is a good step. Will it be enough to change the anticipations of the market and to introduce a real clear price reduction? We need more than $1, which was the reaction of the market.”
Dutch Economic Affiars minister Laurens Jan Brinkhost, who was hosting the International Energy Forum, hailed Saudi Arabia’s proposal.
“It is a recognition that supply matters,” he said.
Part of the Saudi proposal was also for the kingdom alone to provide 9.0 million barrels per day to its customers from June.
Saudi Arabia has an OPEC quota of about 7.6 million bpd but is believed to be exceeding this.
On Saturday the minister said his country had a production capacity of 10.5 million bpd.