US, Saudis after meeting spar over cause of high oil prices

Washington (Platts)--25Apr2005

US President George W Bush Monday pressed Saudi Arabia's Crown Prince
Abdullah to help lower continued strong oil prices, but there was no
indication that that the kingdom would take immediate action to raise output.
Instead, Bush and Prince Abdullah, Saudi Arabia's de factor ruler, spent
several hours at Bush's ranch in Crawford, Texas, discussing among other
topics the long-term plans to increase Saudi Arabia's capacity, a plan that a
senior Bush adviser said could have the effect of curbing prices. "When you
increase the capacity by a significant amount, which they are talking about,
that can't help but have a positive downward effect on prices," National
Security Adviser Steve Hadley, told reporters in a televised briefing. Hadley
said the Saudi presentation, which detailed about $50-bil of investments over
an unspecified period of time, "was a very good plan" because it addressed
"the underlying issue we have when you talk about price, which is the
availability of oil and the availability of capacity."

Hadley said the additional capacity would help "stabilize the market at a
price level which both Saudi Arabia and the US agree needs to be one that
provides adequate return on investment and also is something that isn't so
high that it damages markets and damages the world economy." The plan, which
was outlined last week by Saudi Oil Minister Ali Naimi, calls for the kingdom
to increase production capacity to 12.5-mil b/d by 2009 from the current
11-mil b/d limit. If necessary, Saudi Arabia, which currently pumps about
9.5-mil b/d, would eventually develop a capacity of 15-mil b/d. There appeared
to be little talk of a short-term production increase. When pressed if Bush
asked Abdullah to boost output, Hadley replied: "He's talked about that. If
you looked at his public comments last week, he said exactly something very
much like that. And what he got from the Saudis was a response. And it was the
response I described."

The meeting also included "a good exchange of views" on whether sharply higher
oil prices are primarily the result of constraints in the US refining sector,
Hadley said. But he called that part of the talks "preliminary" and said it
needed to be discussed further. The Saudis, as well as other OPEC producers,
have repeatedly pointed to constraints in the US refining system as being the
root cause of current high oil prices. But Bush, in comments to reporters
before greeting the crown prince at his Crawford ranch, said: "One thing is
for certain, the price of crude is driving the price of gasoline. The price of
crude is up because not only is our economy growing, but economies such as
India and China's economies are growing."

The Saudis, meanwhile, in a post-meeting briefing by foreign affairs adviser
Adel al-Jubeir, said the kingdom could produce more oil if asked, but that
such action still might not lead to a drop in US gasoline prices. "As far as
the situation of supply and demand is concerned, we believe that supplies, as
we speak, are adequate," said Jubeir. "Saudi Arabia has some spare capacity
that it can produce should we be asked to produce that spare capacity by our
customers. We have not been asked for more supplies." He added: "We believe
that the price of crude oil does not reflect the fundamentals of supply and
demand. There is no shortage of crude oil in the world today, what we see is a
shortage of refining capacity as well as shortages in infrastructures and so
forth that drive the price of product up."

This story was originally published in Platts Global Alert
http://www.globalalert.platts.com

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