Saudi Arabia vows to keep up crude supply

economictimes.indiatimes.com REUTERS[ SUNDAY, FEBRUARY 02, 2003 12:27:04 PM ]

ABU DHABI: Opec power Saudi Arabia said on Saturday it saw no shortage of oil in world markets and vowed to ensure the producer group would fulfil its new higher output ceiling of 24.5 million barrels per day (bpd).

"We have responded to the demands of our customers...there is no shortage of crude supply," Saudi Arabia's oil minister Ali al-Naimi told reporters ahead of an energy and environment conference.

"I can assure you that we, as Saudi Arabia, will make sure that 24.5 million bpd is delivered."

Opec agreed last month to hoist its production ceiling by 1.5 million bpd to 24.5 million bpd in a bid to cover a supply shortfall created by strike-bound Opec member Venezuela.

But oil analysts had said the cartel was likely to fall short of the higher production limit since most members say Saudi Arabia and the UAE are bumping up against output capacity.

The Saudi oil minister declined to say how much the kingdom, the world's largest oil exporter, was pumping. Riyadh's new Opec quota from February is set at 7.963 million bpd, but industry sources say flows are expected to reach 8.5-9.0 million bpd.

The influential Saudi oil minister agreed with Opec president Abdullah al-Attiyah that world oil prices for now were being driven by war jitters and not a fundamental shortage of crude.

"The price is not really responding to supply and demand," said Naimi. "The test is that there are no customers asking for supplies. Ask any producer -- all his customers are satisfied."

Attiyah, who is the Qatari oil minister, went a step further and warned of a potential supply glut and price crash during the second quarter.

But for now, the threat of war in West Asia, which supplies 40 percent of world crude exports, and a two-month strike in exporter Venezuela have already pushed oil prices beyond $30 a barrel.

Oil dealers fear that a US-led assault on Iraq, the world's eighth biggest oil exporter, could put a heavy strain on global supplies.

In a bid to soothe market nerves, Naimi insisted that Saudi Arabia would be prepared, if needed, to make use of its still substantial spare capacity which he pegged at 2-2.5 million bpd.

"Saudi Arabia has stated many, many times its responsibility to the oil market," he said. "We will supply any shortage up to our capacity -- whatever the cause."

Naimi has made clear that Riyadh is capable, if necessary, of raising pumping rates to 10 million bpd within weeks.

The Saudi oil minister said Opec stood ready to make up for any supply shortages without major consuming countries having to release their emergency stockpiles of petroleum.

"From the discussions we have had with consuming countries, there is enough confidence now...in the producing countries to make up any shortfall without having to draw on strategic reserves," he said.

"We are willing as producers to make up shortages as they arise."

Worldwide inventories are now running on the low side, particularly in the United States, due to the Venezuelan strike. But Naimi said stockpiles would start to fill up soon.

"With Venezuela returning and supplies steaming to the US, we will see a gradual build in inventories," he said.

Opec president Attiyah said output from Venezuela had already recovered to about 1.4 million bpd and could rise to near full capacity within a few weeks, to near 2.8 million bpd.

The state of global stockpiles will dominate discussions at the cartel's March 11 meeting to review output policy.

"In March, the focus is definitely going to be on where international inventories are and what the projected demand decrease is for the second quarter," said Naimi.

He estimated there would be a demand decline of about 2.5 million bpd in the second quarter of the year when warmer weather in the northern hemisphere cuts consumption for crude.