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Oil price rises despite Saudi Arabia’s pledge

Oil price rises despite Saudi Arabia’s pledge

By Angela Monaghan

Last Updated: 7:33am BST 23/06/2008

The price of crude oil rose to more than $136 a barrel this morning over fears that Saudi Arabia’s pledge to increase production would not make up for the amount lost in Nigeria after pipelines in the country were bombed and production halted.

At an emergency summit of the world’s oil powers in Saudi Arabia yesterday, the country confirmed well-trailed plans to raise production by 200,000 barrels to 9.7m barrels a day – a 30-year high – at yesterday’s emergency summit.

  Oil meeting in Jeddah was attended by 35 countries
Oil go my way: Signs of a split between OPEC countries

However, oil traders warned that a lack of other concrete measures, threats by other OPEC members to decrease production in response to Saudi Arabia’s move and news that Nigeria’s production had been further hit by rebel attacks on pipelines could drive prices up even further.

“There is the danger that the markets will be disappointed and the price will increase again,” said Germany’s economy minister Michael Glos.

OPEC president Chakib Khelil dismissed Saudi Arabia’s pledge to increase oil production, saying that it was not a lack of supply that was driving prices up but speculative investment. Asked if he thought that oil prices would fall after the meeting, Mr Khelil, the Algerian oil minister, said: “I don’t think so.”

Jeroen van der Veer, chief executive of oil giant Royal Dutch Shell, agreed that there would be no “silver bullet” solution to curb spiralling oil prices. “What I’ve heard so far are basically all good ideas, but it will probably not change the price tomorrow morning,” he added.

Signs of a growing split between OPEC countries were clear, with Venezuela, Libya, Algeria, Iran and Qatar opposed to an increase in oil production on the grounds that speculative investment in financial markets was to blame for the price hikes, not a lack of supply. Libya said that it would consider reducing production in response to Saudi Arabia’s statement that it would increase supplies. Kuwait, however, suggested that it would follow Saudi Arabia and increase production.

Venezuela’s finance minister Ali Rodriguez, a former head of OPEC, also said that he expected prices to rise further.

The meeting in Jeddah was attended by 35 countries, seven international organisations, and 25 oil companies. It was called by the Saudi government to discuss spiralling oil prices, which have doubled to almost $140 a barrel in the past year. Prime Minister Gordon Brown and US energy secretary Sam Bodman were among the high-level delegates who attended.

A large number of delegates at the urgently convened meeting called for greater regulation of oil investors.

The head of Libya’s national oil company said that it was unrealistic to come up with a quick fix to such a major issue: “We are coming to discuss a very important subject, supposedly, and expected to get an important decision in three hours,” he explained. “That’s impossible.”

Mr Brown called for greater market transparency, and reiterated the view, shared by the US, that oil-producing countries should produce more.

He also called for an increase in the supply of alternative energy sources, including nuclear power, and invited foreign oil producers to invest in renewable energy production in the UK, and the next generation of nuclear power.

Mr Brown also offered to host a follow-up meeting in the UK before the end of the year.

While Saudi Arabia, the world’s largest exporter of oil, is seeking to increase oil production, it emerged that Nigeria, Africa’s second largest oil producer, is producing at its lowest level in 25 years after rebel attacks on facilities operated by Royal Dutch Shell and Chevron.

It is estimated that Nigeria’s output has been cut by around 300,000 barrels a day as a result of the violence. “Onshore production has been shut in order to protect the environment. We’re hopeful that production can be restored as soon as possible,” said Chevron.

Over the weekend Chevron said its Abiteye-Olero pipeline had been attacked by rebels on Thursday, halting the shipment of about 120,000 barrels of crude oil a day.

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