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Bush, Saudi Fail to Reach Deal to Lower Gas Prices

Abdullah Relays Country's Plan to Boost Capacity

By Michael A. Fletcher
Washington Post Staff Writer
Tuesday, April 26, 2005; Page A03

CRAWFORD, Tex., April 25 -- President Bush and Saudi Crown Prince Abdullah emerged from their meeting here Monday with no agreement that would lower gasoline prices in the near term, although Saudi Arabia reiterated plans to increase oil production capacity in coming years in an effort to meeting fast-growing world demand.

Bush has pressed the Saudis in recent weeks to help lower gasoline prices soon by increasing crude oil production, but Abdullah and his delegation responded here by explaining their long-term strategy to invest $50 billion over five years in a plan that would eventually increase the kingdom's oil production capacity by close to 50 percent.

President Bush walks hand-in-hand, an Arab custom, with Saudi Crown Prince Abdullah on the president's ranch in Crawford, Tex. In a joint statement, the countries pledged cooperation on anti-terrorism efforts and praised Saudi steps toward democracy. (Jason Reed -- Reuters)

"Clearly, the news that came out of the meeting today ought to be good news for the markets, and we would hope that and other factors would result in some positive news in terms of the price fronts," national security adviser Stephen J. Hadley said. "But as you know, these markets are complicated business."

The meeting at Bush's ranch came amid increasing concern about spiraling gasoline prices, which are helping to push the president's approval ratings to new lows. It also came as Saudi officials are seeking to further repair their relationship with the United States, which was badly damaged after the Sept. 11, 2001, terrorist attacks. Fifteen of the 19 suspected terrorists were Saudi citizens.

Crude prices have been rising because increasing demand, particularly in the exploding economies of China and India, has pushed the world's ability to produce oil to its limits.

In previous years, Saudi Arabia, which has about a quarter of the world's oil reserves, had enough spare capacity to increase production significantly when demand spiked. But now the Saudis have little additional capacity, making oil markets jittery. Markets are concerned that a terrorist attack or other significant supply disruption could result in a shortage because of that lack of ability to make up for lost production.

The price of crude oil has hovered around $55 a barrel in recent weeks, more than double the price two years ago. Gasoline in the United States averages $2.22 a gallon, and some analysts predict that it will go higher in the summer.

The price hikes, said Adel al-Jubeir, foreign affairs adviser to Abdullah, are a result of a confluence of factors, including increased demand, limited refinery capacity, a lack of spare production capacity and the fear permeating the market because of the ongoing violence in Iraq.

"There is no shortage of crude oil," he said. "It would not make a difference if we put an extra 1.5 [million] to 2 million barrels of oil on the market."

Some oil policy experts agreed there is relatively little Saudi Arabia can do in the short run to lower oil prices. The country is producing about 9.5 million barrels of oil a day -- close to its nearly 11 million-barrel capacity.

"They are scared to death about the effect of long-term high prices," said David E. Long, a specialist on the Saudis and a former diplomat, explaining that such prices increase incentives for investment in alternative forms of energy, ultimately curbing demand for crude oil.

"The crown prince understands that it's very important to make sure the price is reasonable," Bush told reporters before the meeting. "A high oil price will damage markets, and he knows that."

Bush also made another plea for passage of his energy bill, which was first proposed in 2001 and won House approval last week. Some supporters of the measure said that if it had been enacted several years ago, oil prices would not be at their current level. Opponents dispute that, saying the legislation will do nothing to bring down prices. Bush acknowledged last week that his national energy policy would not lower gasoline prices anytime soon.

The atmosphere surrounding the meeting between Bush and Abdullah was free of much of the tension that surrounded their last session here, which took place just seven months after the Sept. 11 terrorist attacks.

Bush greeted Abdullah with a warm handshake and traditional kisses on both cheeks, before slowly leading the 81-year-old Saudi leader up a walkway lined with Texas bluebonnets and into the meeting in an office at his ranch.

After the session, which included lunch, the two nations issued a joint statement in which they pledged continued cooperation in the war on terrorism, promised to work together toward a peaceful settlement between the Palestinians and Israel and expressed support for the Syrian withdrawal from Lebanon. The statement also praised the steps being taken toward democratic reforms in Saudi Arabia and announced the formation of a joint committee, to be headed by the U.S. secretary of state and the Saudi foreign minister, aimed at increasing educational, business and cultural exchanges between the two nations. The agreement also cited U.S. appreciation for the Saudi pledge to increase oil production.

"The fact is that we have in the international economy growth, we have new consumers -- large-scale consumers coming on," Secretary of State Condoleezza Rice told reporters. "What the president is trying to do is make sure we have a long-term sustainable answer to this."

Staff writer Justin Blum in Washington contributed to this report.

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