By Andrew Hammond
Kingdom says it will raise output when justified by market following Bush call to tame high prices.
Saudi Arabia, the world's top oil exporter, vowed on Tuesday to boost output when the market needed more, responding to a call from US president George W. Bush for Opec to tame high prices.
Saudi oil minister Ali Al-Naimi did not say whether Opec would raise supply at a February 1 meeting, but noted his concern over low fuel inventories.
"We will raise output when the market justifies it, this is our policy," Al-Naimi told reporters in Riyadh. Saudi Arabia is Opec’s most influential member and the only one able to boost supply significantly at short notice.
Earlier, Bush said that he would discuss high oil prices and the threat that they pose to the economy of the world's largest energy consumer with Saudi King Abdullah later on Tuesday.
The comments from Al-Naimi followed remarks a day earlier from Opec secretary-general Abdullah Al-Badri, who told Reuters that the exporter group was "sure" there was enough supply in the market.
Analysts said the comments from Al-Naimi could presage an Opec supply increase or point to the group at least holding supply steady ahead of the typical second-quarter decline in world demand due to warmer weather.
"Based on these remarks, Al-Naimi appears to be setting the stage for rebuilding stocks," said a veteran Opec observer.
Bush said on Tuesday that more oil from Opec would be "helpful" and ease the pain to consumers of high energy prices. He said high prices could cause the US economy to slow.
Saudi Arabia shared Bush's concern about US economic growth, but the oil minister said there was more to economic performance than the price of oil.
"Nobody would look with pleasure on a recession in the US," he said. "Concerns about US economic growth are valid. But the US economy is more than just the price of oil."
Global economies were growing despite oil prices ranging between $90-100 a barrel, said Al-Naimi.
Al-Naimi said he was concerned about low oil inventories, but that he expected them to stabilise near the top of their average range in the second quarter.
Little more than a month ago, the Saudi minister described inventories as being in a "very comfortable" range. But US crude stocks have fallen since then and touched the lowest level since October 2004 in the most recent data.
"We are concerned about the level of inventories," Al-Naimi said. "[But] I believe inventories are not at the level seen in 2004 and you remember how we reacted in May 2004 to rectify [the inventory situation]."
It was around then that Opec, with the exception of Saudi Arabia, was pumping flat out to meet a surge in Chinese demand and rising US consumption.
The Saudi minister said he expected world oil demand to grow by as much as 1.5 million barrels per day (bpd) in 2008. That would be higher than a forecast he gave last month of 1.0-1.1 million bpd.
"Oil demand for 2008 is expected to increase by between 900,000 bpd to 1.5 million bpd... These estimates change as the year goes on."
Opec has blamed factors other than supply and demand for rising prices, such as political tension and the influence of speculative traders for high prices. Al-Naimi said speculators were adding $20-$30 to the price of oil.
"$20-30 is the outside influence on the price of oil," Al-Naimi said. "If you look at who is in the market, you'll find a lot financial institutions, players who are speculating, using the market as a hedge."
Saudi Arabia, Opec’s largest producer, was spending $90 billion on boosting its oil, gas and petrochemical capacity over the next five years, Al-Naimi said.
The country's spare crude output capacity stood at around 2 million bpd, he said. (Reuters)