Saudis build up oil reserves - Stockpile to be tapped if shortfall occurs, official says

www.iht.com Neela Banerjee The New York Times Wednesday, March 19, 2003   Saudi Arabia has amassed a reserve of nearly 50 million barrels of oil that it plans to use to compensate for possible disruptions of Iraqi oil exports if war erupts, according to a senior Saudi official and industry experts who have been told about the supply buildup. "We have about 50 million barrels, most of it in the country," said the Saudi official, who spoke on the condition of anonymity. "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 near their highest levels in years. Calls have increased from various political quarters for the Bush administration to release oil from the U.S. Strategic Petroleum Reserve, which holds 600 million barrels of oil. So far, the administration has said that it will let the Organization of the Petroleum Exporting Countries try to make up for any disruptions before tapping the 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 Naimi, said in a statement. "We have plenty of spare capacity." 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 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 cushion the Saudis have built into their system could make up for about a month of disruption of those exports, although Saudi Arabia does not plan to draw down all 50 million barrels, the Saudi official said. "The United States consumes about 1 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 Ministry of Petroleum and Mineral Resources declined to comment on the reserve. The Saudi official said that he had told members of Congress about the oil pool and that "the U.S. government is certainly aware of this." "Our oil people have been talking to the National Security Council," he added. But he said Saudi Arabia had taken 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. The administration didn't say, 'Gee, guys, can you do this for us?'" A White House spokesman declined to comment on Monday night. 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 1 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. Prices fall sharply on war speculation Oil prices plunged Tuesday as expectations grew that a war in Iraq would be won swiftly and without a significant cutback in Gulf oil supplies on world markets, Agence France-Presse reported from London. The price of Brent crude oil for May delivery plunged by about $3 per barrel, or more than 10 percent, to as low as $26.40 before finishing at $27.25 on the International Petroleum Exchange in London. Light sweet crude for April delivery shed $3.33 to $31.60 in late trading in New York. "The market is collapsing because people feel it's going to be a very quick war," said Robert Laughlin, a trader at GNI. Oil prices tumbled after President George W. Bush gave Saddam Hussein 48 hours to leave Iraq or face attack. But some analysts warned that the sharp decline might not be justified given uncertainties ahead. "There are still many issues unresolved with regard to oil supply, and we still don't know if Saddam has plans to try to damage Iraq's oil fields," said Tony Machacek, a broker at Prudential Bache.