Saudi agrees token output hike to appease US

TOKEN GESTURE: Saudi Arabia has agreed to increase production 3.3%, but saw no demand to raise output further. (Getty Images)

Saudi Arabia announced a modest increase in oil output on Friday after an appeal from visiting President George W. Bush but the news did little to douse prices that hit a new record earlier in the day.

On his second visit to the world's biggest oil-exporter this year, Bush renewed his call for Opec to increase production amid rising pressure at home to take action as soaring fuel prices weigh on the US economy.

Saudi Arabia said it had raised output by 3.3% last week, and was willing and able to raise output further but saw no customer demand.

"Customers, where are you? I want to sell oil but where are the customers? I can't sell oil just to be stored at sea," Saudi Foreign Minister Prince Saud Al-Faisal told a news conference.

Asked about Bush's response, Prince Saud said: "He was satisfied."

Saudi Oil Minister Ali Al-Naimi told US officials that increased output would not reduce costs at the pump for US motorists as soaring prices were mainly the result of a weak dollar, speculation and tensions in oil-producing countries.

Since Bush last visited Saudi Arabia in January, oil prices have jumped some $30 to a new record near $128 a barrel on Friday, adding to US recession fears during a presidential election year in which voters who will choose Bush's successor are increasingly focused on the faltering economy.

"What the president said is, we need to be doing all we can do to deal with this problem," Stephen Hadley, White House national security adviser, told reporters. "The message that came back from the Saudis are, we hear you, we know the markets are under pressure and we're doing all we can do."

White House spokesman Tony Fratto said the news that Saudi Arabia had increased output was a positive development. The supplier of more than a 10th of the world's oil raised supplies by 300,000 barrels per day (bpd) a week ago.

Al-Naimi told a press conference that production in June would reach 9.450 million bpd.

The US, the world's largest energy consumer, also reached agreements with Saudi Arabia to help it protect oil resources and develop peaceful nuclear energy.

The announcement came as Bush ended a three-day trip to Israel where he vowed to oppose Iran's nuclear ambitions. Tehran says its programme is peaceful but Bush said it would be "unforgivable" if Iran were allowed to acquire a nuclear weapon.

Hadley said Bush and King Abdullah believed "Iran, working directly and through Syria, was very much behind what happened in Lebanon", where Hezbollah has routed fighters loyal to the government backed by Saudi Arabia and the West.

They also discussed how to "confront Iran's negative actions and behaviour and increase pressure on Iran".

Prince Saud objected to Bush's outspoken support for Israel during a speech to the Knesset in Jerusalem on Thursday in which the US president referred to the Israelis as "chosen people", saying that the Palestinians were entitled to rights as well.

"There are rights here and rights there. What is required is equality in dealings... and not selectiveness in dealings" Prince Saud said.

US and Saudi leaders are trying to improve ties that deteriorated in the aftermath of the September 11 attacks in 2001 and the US-led invasion of Iraq in 2003.

As part of the new oil security arrangements announced on Friday, the White House said the two allies would conclude an agreement for broader cooperation between the Saudi Interior Ministry and the US government.

Apart from agreements to cooperate on nuclear energy and oil security, the White House said Saudi Arabia had agreed to join two global initiatives - one to combat nuclear terrorism and another to fight the spread of weapons of mass destruction. (Reuters)

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