Saudis can make up for lost Iraqi oil- Don't worry Rafiq...the Saudis can roll out the barrels.

www.smh.com.au By Neela Banerjee March 19 2003

Saudi Arabia has amassed a reserve of nearly 50 million barrels of oil for use in case of disruptions to Iraqi oil exports, according to a senior Saudi official and industry experts who have been told about the build-up.

"We have about 50 million barrels, most of it in the country," said the Saudi official. "We can tap into it immediately once there is a shortfall."

The Saudi stockpile has been built up over the last three months as oil prices have climbed to their highest levels in years.

Calls have increased from various political quarters for the Bush administration to release oil from the US Strategic Petroleum Reserve, which holds 600 million barrels of oil. So far, the administration has said it will let the Organisation of the Petroleum Exporting Countries try to make up for any disruptions before tapping the strategic reserve.

OPEC is led in effect by Saudi Arabia, the only country with spare production capacity that can be called on in case of supply disruptions.

"We will make sure there is enough oil in the market," the Saudi oil minister, Ali al-Naimi, said. "We have plenty of spare capacity."

In New York yesterday, the price of crude oil for April delivery settled at $US34.93 a barrel, down US45c, on profit-taking by traders. During the day, oil traded between $US34 and $US36.95 a barrel.

Industry analysts said Saudi Arabia probably felt compelled to increase production to back up assertions it has long made that it can take care of problems that buffet oil markets.

"It is in the Saudis' interest to produce oil and store some of it away, and the cumulative effect of that is a substantial reserve," said Lawrence J.Goldstein, president of the Petroleum Industry Research Foundation.

"The Saudis know that sustained high prices weaken economic activity, decrease demand and encourage non-OPEC production. They want to see a predictable, stable oil supply."

Iraq has been exporting about 1.5 million barrels a day. The Saudi reserve could make up for about a month's disruption of those exports, although Saudi Arabia did not plan to draw down all 50 million barrels, the Saudi official said.

"The US consumes about one million barrels a day of Iraqi crude," said Yasser Elguindi, a managing director at Medley Global Advisers, a New York consulting firm. "So I don't think it's by accident that the Saudis have these numbers."

A representative of the Saudi oil ministry declined to comment on the reserve. The Saudi official said that he had told members of Congress about the oil pool.

"Our oil people have been talking to the National Security Council," he added.

But he said that Saudi Arabia took this step on its own, without arm-twisting by the White House. "You look around and make plans based on different scenarios," he said. "What if there is a war? So you increase capacity. But how do you tap into reserves immediately?

"You want to make sure that if there are disruptions, the oil markets are covered," he said. "The administration didn't say, 'Gee, guys, can you do this for us?"'

Saudi Arabia is producing about 9 million barrels a day, the official said, or about 1.5 million more than its OPEC quota. The Saudis have about 1.5 million barrels of additional production capacity that they can bring on in less than several weeks, if the need arises, he said.

Independent experts have estimated that Saudi Arabia is producing 9.2 million to 9.5 million barrels a day, with an additional one million barrels that can be called upon.

The Saudis have stored nearly all their reserve within their borders, the official said, rather than in installations they have in the Caribbean, Europe and the Far East.

Saudi Arabia increased production when a general strike in Venezuela reduced exports from there to a trickle.

But prices for oil have climbed so high that foreign companies are buying only enough Saudi oil for their immediate refining needs, not to build supplies, Mr Elguindi said.

Rather than reduce output, the Saudis have continued to increase and store what has not been bought.

Oil that would be shipped from Iraq at this point would reach the US in about 40 days and any Saudi oil sent to make up for disruptions would take the same amount of time.