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September 10, 2012 6:45 pm
Saudi Arabia has given a cool reception to a rare G7 request to increase oil production to bring down energy costs, saying the 30 per cent rally in oil prices since mid-June is unrelated to supply and demand fundamentals.
The Group of Seven finance ministers two weeks ago called on oil exporters to expand production in a statement that highlights their concern about the fresh rise in crude prices since June.
But Ali Naimi, the powerful Saudi oil minister, on Monday said that while the kingdom shared the concern about rising oil costs, the current high price of oil “is simply not supported by market fundamentals” of supply and demand.
“The market is well-balanced, forward-cover remains within an acceptable range and inventories are more than adequate,” Mr Naimi said in a statement carried by the state-controlled Saudi Press Agency. The Saudi statement did not directly refer to the G7 communiqué, but analysts said it was a response to it.
The G7 finance ministers said “geopolitical concerns and certain supply disruptions”, a reference to lower North Sea output, the impact of Western sanctions on Iranian oil production and disruptions elsewhere, were behind the rise in prices. “We encourage oil-producing countries to increase their output to meet demand, while drawing prudently on excess capacity,” said the G7 ministers.
Mr Naimi reiterated Saudi Arabia’s traditional policy line that it was ready to “meet any additional demand” from its customers. “Saudi Arabia will, as always, take all necessary steps to ensure the market is well supplied.”
Saudi Arabia, the world’s largest oil producer and exporter, raised its production earlier this year to a 30-year high of more than 10m barrels a day as refiners in Europe and Asia asked Riyadh for extra supplies to offset the loss of sanctions-hit Iranian petroleum exports.
The US and the EU in June imposed a barrage of new sanctions on Tehran’s hydrocarbon industry that have forced buyers to stop importing Iranian crude. The country’s oil production has fallen recently to 2.9m b/d, the lowest level in more than two decades.
Oil prices have rallied nearly 30 per cent since mid-June, recently hitting $115 a barrel. On Monday, Brent crude, the global benchmark, was trading slightly higher at $114.37 a barrel. West Texas Intermediate, the US benchmark, was at $96.
The rise in prices has prompted Washington to dust off plans made earlier this year to release oil from its strategic petroleum reserve. But oil analysts who have discussed the plans with US officials say the White House has yet to make up its mind. The International Energy Agency, which has co-ordinated the release of stocks on previous occasions, has reacted coolly to the American plan.
In language that raises the prospect of a co-ordinated international release of oil reserves, the G7 countries said two weeks ago they “stand ready” to call on the IEA “to ensure that the market is fully and timely supplied”. However, European officials say that Germany is opposed to a release and several other countries, including Italy and Japan, are lukewarm.
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