The current oil price boom is “significantly” different from the politically driven price spikes of the 1970s, Saudi Arabia’s energy minister said in London yesterday.
In comments seen as calming fears over a repeat of an oil-recession, Ali al-Naimi unveiled plans to increase Saudi production capacity by as much as 37 per cent. He played down concern that Opec, the producers’ cartel that is dominated by the Saudi Arabians, would cut production next month, saying the oil market was “in balance”.
However he admitted that the crude price, which rose close to $50 a barrel yesterday, included a “fear premium” of between $10 and $15 reflecting concerns over global terrorism and instability in the Middle East.
In a keynote speech at an oil conference at Chatham House, Mr Naimi said the price spike of 1973-74 was triggered by Opec’s embargo on Israel’s allies in the October War, while the 1979-80 surge was fuelled by the Iranian Revolution. “The difference is significant,” he said. “What we see today is a totally different situation. It’s a demand-driven situation. Everyone was taken by surprise by the surge in demand in 2004.”
He said there was little sign of a slowdown in key markets such as China and that efforts to slow its economy were unlikely to affect the oil-based sectors.
He declined to reveal what Opec would do at its meeting on 10 December. Countries such as Iran have been pushing for a cut in output quotas. But Mr Naimi said: “The market today is in balance. I think supply is a little bit ahead of demand, and inventories are building comfortably.”
Julian Lee, an analyst at the Centre for Global Energy Studies, said: “I think that is a sign that Saudi Arabia is still holding out against that [Iranian] line. Stocks are rising but the question is whether they are rising by enough. If we get a cold winter the US will be scouring the world for heating oil to import and that will push up the price.”
Mr Naimi admitted products such as heating oil were in short supply but said this would be corrected in time.
He twice declined to specify the price of crude he wants to achieve. “It is that price which consumers, investors and producers are happy with,” he said, adding that investors and producers would probably see a range of $30 to $34 a barrel as fair. Opec targets a range of $22 to $28.
Mr Lee said Mr Naimi’s decision not to stand by the Opec range was a clear sign the cartel planned to move up to a figure of about $30 a barrel soon.
Mr Naimi said Saudi Arabia had drawn up plans to increase productive capacity from 11 million barrels a day to 12.5 million. “This demonstrates our desire … to maintain a reasonable spare capacity of no less than 1.5 million barrels,” he told the audience of economists, politicians and journalists. His comments came as oil prices rose sharply after a gas leak at a Norwegian North Sea oil platform disrupted production. London Brent crude jumped more than $1 to $45.75.