By Faiza Saleh Ambah
Washington Post Foreign Service
Sunday, June 22, 2008
JIDDAH, Saudi Arabia, June 21 -- Leaders from oil-producing and oil-consuming nations will meet here Sunday to try to pinpoint the reasons behind the rise in oil prices, which have doubled over the past year, and to find ways to bring them down.
The summit, hastily convened by Saudi Arabia after oil prices nearly reached $140 a barrel this month, is meant to encourage key consumers and producers to join forces to combat high prices, officials said. Though officials from the more than 30 countries gathering here agree that the price must come down, they disagree sharply on the cause of the steep climb.
U.S. Energy Secretary Samuel W. Bodman, representing the world's top oil consumer, said Saturday that insufficient oil production is driving the soaring crude prices. Oil production has not kept up with increasing demand from developing countries including China and India, Bodman said.
"In the absence of any additional crude supply, for every 1 percent of crude demand, we will expect a 20 percent increase in price in order to balance the market," he said.
But Saudi officials have argued that the market is sufficiently supplied and that market speculation -- billions of dollars in financial investments in oil by investors hedging against a weakening U.S. dollar -- is the primary force driving up prices.
At the meeting Sunday, Saudi Arabia, the world's top oil exporter, is expected to ask for measures to control market speculation in futures exchanges, where oil prices are set. The Saudis have also said high government taxes on fuel and other geopolitical forces, such as instability in oil-producing countries including Iraq, Nigeria and Iran, were putting pressure on prices.
"We're striving for stable oil prices. There are many reasons for the problem and its causes, and our view is that it needs cooperation from all sides in many areas. It's not possible for just one side to provide the solution for this problem," Saudi Arabia's deputy oil minister, Prince Salman bin Abdul-Aziz, told reporters.
Analysts said Saudi Arabia was concerned about high oil prices because despite the cash windfall, they drive up inflation, hurt emerging economies and force countries to look for alternative fuel sources.
Saudi Arabia, under pressure from allies such as the United States and Britain, increased production in May by 300,000 barrels a day, to the current 9.45 million barrels a day. Oil Minister Ali al-Naimi told reporters the kingdom, which sits on the world's largest oil reserves, will increase production by an additional 200,000 next month.
Saudi Arabia has said it will produce 12.5 million barrels a day by the end of 2009. The Saudis fear that adding more crude to the market could lead to a dive in its value. In the late 1990s, Saudi Arabia's economy suffered when oil fell to $10 per barrel under similar circumstances.