Originally created 05/25/04

Saudi oil minister says $30-$34 per barrel is 'fair' price for oil

AMSTERDAM, Netherlands -- Saudi Arabia's oil minister, the most powerful voice in OPEC, said Monday that he believed $30-$34 per barrel was a "fair and reasonable price" for oil in the United States, though he added that the group had no plans to change its preferred benchmark price range of $22-$28.

Saudi Oil Minister Ali Naimi also denied any differences within the Organization of Petroleum Exporting Countries over Saudi Arabia's pledge over the weekend to supply up to 2 million barrels a day in additional crude oil if the market demands it. Saudi Arabia, which has the world's largest proven crude reserves, wants only to ease concerns about the reliability of oil supplies, he told a news conference in Amsterdam at the end of a three-day conference of oil producing and consuming nations.

U.S. oil prices have surpassed $40 a barrel in recent weeks due to fears about instability in Iraq and other oil-rich Gulf countries, bottlenecks in gasoline production at American refineries, and an unforeseen rise in global demand.

Although crude futures retreated early Monday, they recovered and surged ahead later in the day. Contracts of light U.S. crude closed up $1.79 per barrel at $41.72, in in New York. July contracts of North Sea Brent crude rose $1.59 per barrel to $38.10 by the evening in London.

U.S. crude typically trades at a premium of several dollars above the price of OPEC's benchmark blend of crudes. The OPEC benchmark stood at $36.40 on Friday, the most recent day for which the group complied information.

OPEC members are concerned that prices are too high, Naimi said. He proposed on Friday that the group raise its production ceiling by at least 2 million barrels, or 8.5 percent, when its members meet June 3 in Beirut. In an interview with pan-Arab daily al-Hayat published Sunday, he said OPEC should go even further and raise its ceiling by 2.3 million-2.5 million barrels a day.

In the interim, Naimi has signaled Saudi Arabia's willingness to provide more crude of its own, independent of what OPEC decides to do. Stable oil prices were the collective responsibility of all crude producers and consumers, and Saudi Arabia was just doing its part, Naimi said.

OPEC supplies about a third of the world's oil, but Saudi Arabia is the only country with significant untapped production capacity. OPEC is currently pumping 2.3 million barrels above its daily production ceiling of 23.5 million barrels.

Nine of OPEC's 11 members held informal talks Saturday ahead of the energy conference in Amsterdam, amid expectations that they would agree to lift the group's output ceiling. The Nigerian and Kuwaiti oil ministers did not attend, and the others deferred action until their Beirut meeting, saying that any decision needed to be unanimous.

Although Naimi played down any dispute within OPEC, his independent assurances on oil supplies appeared to have upset his Iranian counterpart, Bijan Namdar Zangeneh, and possibly others. Zangeneh said Sunday that it was important for OPEC to reach consensus as a group on oil production levels.

Naimi, together with Zangeneh and Qatar's Oil Minister Abdullah bin Hamad Al-Attiyah, agreed at their joint news conference that OPEC had no plans to raise its desired $22-$28 price range. However, Zangeneh said he preferred to see prices at the upper end of that range.

Naimi said that a "fair and reasonable price" must reflect several factors, including an adequate return for oil investors and the cost of exploring for new oil fields to replace those being depleted.

Nigeria's Presidential Adviser on Petroleum and Energy Edmund Dakouro told reporters after the news conference that a minimum price of $22 was no longer "realistic," given the economic recovery and strength of global demand.

Algerian Minister of Energy and Mines Chakib Khelil, speaking at a separate Amsterdam news briefing, said he backed OPEC's current price target. However, he warned that new gasoline specifications in the United States, inadequate investment in U.S. refineries, geopolitical uncertainties and fears about possible disruptions in Iraqi oil supplies were contributing to price volatility.

"The market knows very well what is causing the high prices and if these issues aren't solved, then the world will be living with high prices of over $28 a barrel for a long time," Khelil said.


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