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Saudi Arabia has broken ranks with fellow OPEC members by offering to boost oil production immediately in a bid to stabilise prices and calm market fears.
It was not met with universal approval, and some OPEC members claimed that the action was unnecessary and undermined the cartel's interests.
Venezuelan oil minister Rafael Ramirez, who initially threatened to veto the summit, told the media that the Saudi move was unlikely to affect the price of oil and claimed the current high price was "not a problem of supply".
Chekib Khelil Algeria's oil minister and current head of OPEC, echoed his remarks. He described the Saudi move as illogical, saying, "The concern over future oil supply is not a new phenomenon." Libya was also hawkish, threatening to cut its own production in response. As might be expected, the response from Western consumers was more positive. US Energy secretary Samuel Bodman claimed lack of supply was indeed the driving force behind the high prices.
America has been calling for a hike in production from Saudi Arabia for several months, with both the US Congress and President Bush urging action from Saudi Arabia.
Any favourable market response to the Saudi move was assuaged by developments in Nigeria, where attacks on a Shell platform and a Chevron pipeline wiped out 300-350,000 barrels a day from global production. Oil rose on two consecutive days to hit highs of US$137.48 for August settlement on NYMEX (New York mercantile exchange).
Saudi's Minister of Petroleum Ali Bin Ibrahim Al Naimi's latest comments do not in fact reflect a significant change in Saudi Arabia's position. Following a visit by US president Bush in May, the kingdom increased daily production by 3.3%. However, on that occasion, Saudi foreign minister Prince Saud Al Faisal indicated that supply did not appear to be the problem.
"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," he was reported as saying after the meeting, reflecting the common OPEC position that speculation is the root of current high prices, and further production would merely be stored in depots.
High prices at the pump arguably have more to do with shortages in specific fractions of oil, such as diesel, petrol and kerosene. The bottleneck can be resolved only when more refinery capacity is installed. Indeed, heavier fractions of oil (such as fuel oil) are already building up in reserves.
Saudi Arabia plans to increase its total production capacity to 12.5 million bpd by the end of 2009, and according to Al Naimi, could eventually expand to 15 million bpd if required. Much of this new capacity will come from several new giant fields including, Zuluf, Safaniyah, Berri and Khurais. However, analysts believe that the newer fields will be of a heavier grade and possibly more sour, than older Saudi fields. This will again require an increase in refinery capacity to convert more of the oil to the fractions most in demand: diesel and petrol.
To this end, Saudi Arabia is in the process of signing a series of deals with major international oil companies to increase refinery capacity. French firm Total will take a 37.5% stake in a new 400,000 bpd facility in the city of Jubail, expected to begin production in 2012, and costing up to US$12bn. Three further refineries are planned, which KSA hopes will boost domestic refinery capacity to 3.7 million bpd, from the 2.1 million currently produced.
Whether this move will be sufficient to see off worries about the long-term supply of oil is not yet clear, but the market looks set to see further turbulence.
Oliver Cornock is Middle East specialist, Oxford Business Group's regional editor in the GCC.
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