Saudi Arabia says no big deal to ramp up oil output

OPEC kingpin brushes off Iran threat, says $100 a barrel ideal price for Riyadh
Saudi Oil Minister Ali Al Naimi says country only needs to turn a few valves to offset drop in Iranian supply
By Reuters
Tue 17 Jan 2012 08:07 AM

Saudi Arabia, the world's top oil exporter, said on Monday
it can pump more oil at a moment's notice, the day after Iran warned Gulf oil
producers not to compensate
for any disruption to Iranian output.

Saudi Oil Minister Ali al-Naimi, in an interview with CNN,
said Riyadh could increase production by about 2 million barrels per day (bpd)
"almost immediately".

He identified $100 a barrel as an ideal oil price for
Riyadh.

Naimi's remarks were aired after Iran said on Sunday its
Gulf Arab should not lift output to make up for any shortfall from Iran in the
event of oil sanctions on Tehran.

"This spare capacity is to respond to emergencies
worldwide, to respond to our customer demand, and that is really the focus. Our
focus is not on who drops out from production, but who wants more," he
said.

Iranian oil supplies to Europe are set to fall this year
when an European Union embargo, due to be agreed next week, is fully
implemented in July.

A new US sanction on Iran's central bank means some of
Iran's biggest customers in Asia may seek supplies from elsewhere.

"We can easily get up to 11.4, 11.8 [million barrels a
day] almost immediately, in a few days," Naimi told CNN - up from just
under 10 million bpd now. "...all we need is to turn valves."

Iran said on Sunday that any such action by the Gulf
countries "will not be perceived as friendly."

"Saudi Arabia pledging a replacement of Iran crude oil
to other nations is a risk," said oil consultant Olivier Jakob of
Petroconsultants. "Saudi Arabia is walking a thin line as it needs to
re-assure the West without appearing as supporting Israel against Iran."

The Saudi oil chief said it would take about 90 days to add
a further 700,000 bpd and reach full capacity of 12.5 million barrels daily.

Saudi Arabia is the only oil producer with significant spare
capacity to replace any fall in supply from its regional rival Iran, which is
under increasing pressure from the United States and Europe over its nuclear
programme.

Tehran has threatened to block the Strait of Hormuz, the
gateway for large volumes of crude from the Gulf, should it face an oil
embargo.

"I personally do not believe that the Strait, if it
were shut, will be shut for any length of time," said Naimi. "I don't
think all these pronouncements are helpful to the international oil market or
to the price of oil. It's really disturbing."

Naimi said that Saudi could easily increase sales to China,
the world's second biggest oil importer and Iran's biggest customer.

Saudi currently exports about 400 to 500,000 barrels daily
to China, said Naimi. "So if were to be asked to provide additional 200 or
300 [thousand], it's not a big deal"

The Saudi oil minister said he favours an oil price of $100
per barrel, the first time Riyadh has identified an ideal crude price in more
than three years.

"Our wish and hope is we can stabilise this oil price
and keep it at a level around $100," Naimi said.

He said the $100 barrel figure was for an average of crudes
worldwide.

"If we were able as producers and consumers to average
$100, I think the world economy would be in better shape," he said.

International benchmark Brent crude was valued at just over
$111 a barrel on Monday. US crude traded at $99.50 a barrel.

Riyadh has not specified a preferred oil price since it said
it favoured $75 per barrel in November 2008. Oil prices have risen sharply
since then and it is estimated that to balance its national budget Saudi
requires an oil price of $90 a barrel.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.