ShareThis Page
Business

Saudis can't soothe oil market fears

| Thursday, Aug. 12, 2004

WASHINGTON (AP) -- Jitters over potential supply disruptions dominated oil markets Wednesday, undermining Saudi Arabia's effort to soothe those concerns by saying it could immediately boost daily output by 1.3 million barrels.

The Saudi comments briefly drove crude futures sharply lower, although prices later reversed course and ended four pennies below their all-time high as the controversy surrounding Russian oil giant Yukos weighed on traders' minds.

Concerns about supply tightness were reinforced by a report showing U.S. inventories of crude shrank last week and announcements from oil companies that they were abandoning facilities in the Gulf of Mexico due to a tropical storm.

Light crude for September delivery settled at $44.80, up 28 cents on the New York Mercantile Exchange. On London's International Petroleum Exchange, Brent crude futures closed at $41.57, up 29 cents.

Saudi Oil Minister Ali Naimi said the world's largest producer was "prepared to meet all the requirements of the international oil companies if they need additional volumes, relying on the surplus production capacity of more than 1.3 million barrels daily, which could be used immediately if required."

He also expressed worries that today's high energy prices could harm the global economy and dampen demand for oil.

While Naimi's comments gave traders some clarity about Saudi Arabia's production capabilities, they did not allay fears about the market's tenuous supply-demand balance and its vulnerability to geopolitical and meteorological factors.

"If they were hoping to break the back of the rally with just that, it's not going to come to fruition," said John Kilduff, senior vice president of the energy risk management group at Fimat USA Inc. "There are just too many uncertainties regarding supply."

World oil prices have been soaring due to strong demand, fears of terrorist attacks, disruptions to Iraqi crude exports and financial troubles at Russia's largest oil producer, Yukos, which is in a battle with the government over billions in back taxes.

Yesterday, Russian energy officials said Yukos should be given access to its frozen bank accounts to prevent a break in oil production, while the company received a default notice on a $1.6 billion loan that pushes it closer toward bankruptcy.

Yukos produces roughly 1.7 million barrels per day, or about 2 percent of total global output.

Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, said Naimi's comments would have had more impact but for the ongoing brouhaha surrounding Yukos.

"That is the key factor in the market right now," he said.

Other news influencing oil prices yesterday included announcements from several oil companies, including ChevronTexaco Corp. and Exxon Mobil Corp., that they were evacuating some facilities in the Gulf of Mexico and temporarily shutting down production in preparation for Tropical Storm Bonnie.

Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, said the storm could both delay crude imports and inhibit refinery operations in the region.

Meanwhile, Naimi said Saudi Arabia has increased production by 1 million barrels a day during the past three months, bringing average daily output to more than 9.3 million barrels.

"The Kingdom of Saudi Arabia, along with other OPEC countries, endeavors to ensure the stability of the international oil market and prevent oil prices from escalating in a way that may negatively affect the world economy or oil demand," he said.

An extra 1.3 million barrels a day would increase global output by about 1.5 percent.

Naimi's comments follow remarks made Aug. 3 by Purnomo Yusgiantoro, president of the Organization of Petroleum Exporting Countries, who said the cartel could not immediately increase output to help lower sky-high global oil prices. Yusgiantoro added that Saudi Arabia had spare capacity, but could not bring more crude supply to the market in the short term.

Also yesterday, the International Energy Agency said that while the world oil market is tight and uncertain, supply still exceeds demand and that the soaring prices were unjustified.

"The market is tight, production and infrastructure capacity is less than desired and uncertainties continue to weigh on the market," the Paris-based agency said in its monthly report. "But, does this justify $45 oil• Current oil prices are a concern and are causing economic damage."

However, the IEA said the trend in the futures markets suggested it was unlikely that prices would decline significantly in the near term.

In its weekly statistical report, the Energy Department said yesterday that commercially available supplies of crude dropped by 4.3 million barrels last week to 294.3 million barrels.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.

click me