The Wall Street Journal: Saudi Oil Minister Says Market Is Balanced, Requires No Changes

STANDING PAT
 
•  What’s New: Saudi Arabia’s oil minister says OPEC output changes aren’t needed if current market trends hold.
 
•  The Background: Saudi Arabia is the oil cartel’s de facto leader and the world’s largest oil exporter. Its recent cuts have contributed to rising oil prices after a recent drop.
 
•  What’s Next: OPEC officials are scheduled to meet March 15 in Vienna.

THE ARTICLE

Naimi Confirms Reduction
Of 1 Million Barrels a Day
In Kingdom’s Production
By KAREN ELLIOTT HOUSE
February 12, 2007; Page A3

RIYADH, Saudi Arabia — The world oil market is in “much, much better health and balance” now and, if trends hold, there will be no need for further production cuts or increases in supply when members of the Organization of Petroleum Exporting Countries meet next month, Saudi Arabian Oil Minister Ali Naimi said yesterday.

In an interview, Mr. Naimi said the kingdom’s production is now 8.5 million to 8.6 million barrels a day, confirming its reduction by one million barrels a day from its output about six months ago.
 
The reduction is part of a push by OPEC to shrink stockpiles of oil that climbed sharply last year as demand growth stumbled. The U.S. benchmark crude price fell through the turn of the year to a 20-month low in mid-January of $49.90 a barrel. It has since rebounded to settle Friday at $59.89 a barrel.

Mostly mild winter weather, heavy selling by financial funds and falling oil use among developed nations have contributed to prices dropping from the record $77.03 a barrel settlement price last summer.

OPEC, whose members supply about 40% of the world’s oil, is to meet March 15 in Vienna to assess its production policy.

“If you are asking me are we going to take additional cuts or increase supply, I do not know,” said Mr. Naimi, the oil cartel’s de facto leader. “But, most probably if the trend is like what it is like today, with the market getting in much, much better health and balance, there may not be any reason to change.” He added that the situation can still change: “I would not be surprised to see different figures and a different situation on the 15th of March. That is the benefit of getting together with 12 other oil ministers to review the data.”
 
Saudi Arabia’s one-million-barrel-a-day reduction, reported in The Wall Street Journal last month, is nearly double what it agreed to under two OPEC output cuts hammered out by the cartel at meetings in Doha, Qatar, in October and in Abuja, Nigeria, in December.

Asked about his plans and rumors he may want to retire, Mr. Naimi hinted that he would like to stay on in his role when King Abdullah undertakes his first major cabinet shuffle soon. The king is said to be planning the shuffle to inject new blood into his 20-member cabinet.

“Ministers normally do not retire,” the 71-year-old Mr. Naimi said. “Ministers are appointed by the king and relieved by the king, unless there is serious medical reason, and as you can see, I am fairly fit and in good shape.

“There are still many challenges ahead of us,” he added. He serves at the disposal of the king and “anything else has no basis.”

Mr. Naimi said that beginning in May 2004, the kingdom “went almost all out” to produce 9.5 million barrels a day to satisfy rising demand. “We kept that level until August/September last year,” he said. When the kingdom saw demand slacken in the summer of 2006, it voluntarily cut production by 450,000 to 500,000 barrels a day and then by another 400,000 to 500,000 barrels a day in concert with OPEC. “So you can say one million barrels was taken off the market,” he said, “but gradually.”

The drop in oil prices from last summer’s highs and a surge in interest in rival forms of energy haven’t forced the kingdom, the world’s largest crude exporter, to rethink its investment plans.

“From what we see, the world will need what Saudi Arabia produces,” Mr. Naimi said. Therefore, the kingdom will proceed with its plan to increase capacity by the end of 2009 to 12.5 million barrels a day from 11.3 million barrels.

“There is no question demand will be there in 2009,” he said. “There is no reason to think otherwise.”

President Bush declared in January a more-than-fivefold increase in target levels for renewable-fuel production, to 35 billion gallons annually by 2017.

“Alternatives will be needed over the next 30 years,” Mr. Naimi acknowledged. The world, he added, will need every unit of energy “it can generate, whether from alternatives, conservation or greater efficiency.” Still, he said, “it is a global market, so what one country does isn’t really relevant.”

Among the reasons world leaders cite to diversify their energy sources is mounting concern over the future reliability of the world’s oil and natural-gas suppliers — those in the Middle East, Russia and Venezuela, to name but three.

Mr. Naimi responded that the major threat to oil stability is “all these outside influences, strikes, tension, geopolitical events.” But one has to keep it all in perspective. “We have had a lot of tension, many wars and the flow of oil has not been interrupted. There is a determination to keep the flow of oil uninterrupted,” he said.

He conceded that terrorist threats pose a serious challenge. “Security in the kingdom against terrorism is very, very high,” he said. “But you can never have enough security, enough protection, because you are dealing with a threat that is very, very well organized and erratic. It can happen anytime.”

Mr. Naimi, who has served as minister of petroleum and minerals in the world’s most important oil-exporting nation for nearly a dozen years, met yesterday with Russian oil-company heads in advance of the visit by Russian President Vladimir Putin, who was to arrive later in the day.”When the two biggest producers and exporters of oil meet, energy will be a subject — but not the subject,” Mr. Naimi said.

Mr. Putin’s visit is the first by a Russian leader to the kingdom since its founding. Even though the Soviet Union was the first nation to recognize parts of what eventually became the kingdom, its leaders were never welcome here during the communist rule because the leadership of Saudi Arabia, a religious nation, didn’t approve of Moscow’s policies or principles as a country that was antireligion.

The distaste for the Soviet Union was particularly high after the Soviets invaded Afghanistan in l979, prompting many deeply religious young Saudis to join the Afghan resistance and creating some of the radical Saudi jihadists that threaten the kingdom today.

Write to Karen Elliott House at [email protected]

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