RPT-DAVOS-UPDATE 1-Saudi says no oil shortage, price too high

www.forbes.com Reuters, 01.25.03, 5:02 AM ET

(corrects typo in first paragraph) By Knut Engelmann

DAVOS, Switzerland, Jan 25 (Reuters) - Saudi Arabia said on Saturday there was no lack of oil in world markets despite fears of war in Iraq, signalling the world's top oil producer has no intention to raise production further for the moment.

"There is no shortage in the market and there should be no reason for prices (to be) where they are today," Saudi Oil minister Ali al-Naimi told a panel discussion at the World Economic Forum annual meeting in the Swiss ski resort of Davos.

"We checked. We called. I checked with individual customers, refineries and others. I ask them one question: Do you feel you need more oil? And the answer is no," he said.

Oil prices have surged -- topping the $22-$28 range per barrel that OPEC is targeting -- amid fears of a U.S.-led war in Iraq and because of a seven-week-old general strike that has cut exports from OPEC member Venezuela.

In the United States, prices hit a high of $35.20 this week. U.S. crude traded above $33 on Friday.

"We believe $25 is the right price to meet the interests" of producers, consumers, and world oil companies, Naimi said. "We will try to get it back at $25. That's where we want it to be."

OPEC aims to keep prices for a basket of its crude in a $22-$28 range and has just raised production quotas by seven percent or 1.5 million barrels a day effective February 1.

"There are all these drums of war going around," Naimi said. "It has nothing to do with supply. We know there is a balance of demand and supply."

Still, Naimi pledged that Saudia Arabia and the rest of the Organisation of Petroleum Exporting Countries, which it dominates, would work together, should a war in Iraq and continued troubles in Venezuela continue to keep a lid on world oil supplies.

"We have always said that regardless of the cause of the shortage, OPEC and Saudi Arabia will do their utmost to make up for the shortage," he said.

His comments echoed those of OPEC Secretary-General Alvaro Silva, who told the high-powered gathering on Friday there was nothing more OPEC could do to rein in runaway world oil prices.

"What can we do more? I do not agree there is a lack of oil," he said. "The problem of the price is the threat of war."

Naimi said oil prices would be above $40 a barrel now if Saudi Arabia had not maintained spare capacity of around three million or 3.5 million barrels per day. But he declined to say exactly what Saudi Arabia's daily production level was.

Naimi added his country could quickly boost oil output to 10.5 million barrels per day, should supplies be disrupted for any reason. But it would need around 90 days to get the infrastructure in place to support such high output levels in the longer term.

Saudi Arabia's production quota was set at 7.963 million barrels per day from February but sources in the kingdom say it is expected to be pumping 8.5-9 million in the next few weeks.

OPEC President Abdullah al-Attiyah warned there may in fact be a glut of oil in world markets soon as the onset of warm weather in the northern hemisphere cuts demand just as the group has raised supply.

"We calculated that we will have a three million barrel (per day) surplus by March," he told Reuters. OPEC will next meet on March 11 to review its output levels.

The northern springtime normally cuts demand for crude by around two million barrels per day (bpd), and another two to 2.5 million bpd could be flowing onstream if the strike in Venezuela is resolved by then.