Saudi Arabia vowed yesterday to pump significantly more of its vast petroleum reserves in coming weeks with the aim of lowering crude oil prices from record highs.
The move may lessen the threat that soaring oil costs would derail the global economic expansion, analysts said. But U.S. gasoline prices are unlikely to be affected much, they said, because the gas market will still be squeezed by a shortage of refining capacity and environmental restrictions on gas imports at a time of surging demand.
Saudi oil minister Ali al-Naimi said in a prepared statement that the kingdom would increase its crude production to 9 million barrels a day in June, up from current levels, which are estimated at 8.5 million barrels a day. The statement attributed the decision to "concern for market stability . . . and the growth of the world economy."
More important, the kingdom, which is the world's largest oil exporter by far, would be prepared to go further if necessary, Saudi officials said. "If we find people want more than nine [million barrels a day], we will make available more than nine," said Adel Al-Jubeir, a foreign policy adviser to Saudi Crown Prince Abdullah, in a conference call with reporters. "No one is going to be turned back if they want Saudi crude."
The Saudi announcement, which came on the eve of a major meeting in Amsterdam between oil-consuming and oil-producing countries, is likely to dampen a run-up in the market that drove crude oil futures to a record $41.85 a barrel on Monday, experts said. Unexpectedly high demand, market speculation and concerns about supply disruption have all contributed to the increase.
The rapid rise in crude costs has evoked mounting alarm from officials of the United States and other industrialized countries, because high crude prices act as a sort of tax on their economies, threatening global growth. The International Monetary Fund has estimated that each $5-a-barrel increase in crude prices knocks about 0.3 percent off global growth, which the fund forecast at about 4.6 percent this year, based on the assumption of a $30-a-barrel price.
In a sign of where prices may be headed, crude prices fell below $40 a barrel yesterday for the first time since May 10, with crude for July delivery closing at $39.93 a barrel on the New York Mercantile Exchange.
"It's overdue news and it's welcome news," Treasury Secretary John W. Snow said of the Saudi announcement, in an interview on Fox News. "Oil prices above $40 barrel are not helpful for this recovery. We'll do a lot better and so will the world economy at prices that are more moderate."
The news has political implications as well, because a book by Bob Woodward of The Washington Post has asserted that the Saudi ambassador, Prince Bandar bin Sultan, assured President Bush during the run-up to the Iraq war that his country hoped to "fine-tune" oil prices to help boost the U.S. economy prior to the November election. John F. Kerry, the presumptive Democratic presidential nominee, has seized on the account to question Bush's oil policy.
Asked yesterday whether his government's decision was motivated by a desire to improve Bush's prospects, Al-Jubeir replied, "That's not based in reality. . . . We don't politicize oil." The reason for increasing oil production, he said, was the Saudis' self interest. The kingdom's oil policymakers, in accord with most other members of the Organization of the Petroleum Exporting Countries, have long sought to keep prices within a range of about $22 to $28 a barrel, on the rationale that an excessively high price is likely to damage global growth and force consumers to switch to alternative energy supplies.
"It is not in the interest of any producer to see $40-a-barrel oil," Al-Jubeir said. "It sets the stage for a potential crash in prices, which hurts everyone. . . . That's what is driving this [decision], and nothing else."
Other members of OPEC, he said, are likely to back a Saudi proposal to increase overall OPEC production ceilings by 2 million barrels a day.
At the same time, OPEC officials have been suggesting recently that they may wish to raise their target range to substantially above $30 a barrel. That proposal may win widespread support within the organization because the decline in the dollar -- in which oil is priced for world trade -- has effectively reduced revenue to oil exporters, an OPEC official said.
The Saudi move "will cool off the market, and take off the pressure for the price to go higher," said Fareed Mohamedi, chief economist at PFC Energy, a Washington-based consulting firm. The Saudis, he said, "feel very comfortable with $35, but with the price at $40 and threatening $45, and some traders talking about $50, that gets them uncomfortable."