Saudi price cuts support kingdom's offer to pump more oil

London (Platts)--6Sep2005

Saudi Arabia has backed up its offer to boost its oil production to its
full 11-mil b/d capacity in order to meet any supply shortages arising from
the impact of Hurricane Katrina by cutting its October crude prices, an OPEC
delegate said Tuesday.
     "You have to push medium and heavy crude onto the market to ease the
situation, especially in the US, as a result of production being cut in the
Gulf of Mexico," the OPEC delegate said. "One way to do it is through prices
to the US and Europe."
     "So, he added, "Saudi Arabia lowered its crude prices and this lowering
of the prices for heavy and medium crude for Europe and the US will result in
more available oil."
     Saudi Arabia this week cut the prices of its heavy crude for October
lifting by as much as $3.15/bbl for European customers and by $1.60/bbl for US
customers.
     Saudi Oil Minister Ali Naimi said Aug 29 that the OPEC giant stood
"ready to increase crude oil production immediately to 11-mil b/d and sustain
that level to replace any shortages in the crude oil market."
     Asked whether the kingdom, which is the world's biggest oil producer and
one of the top four suppliers to the US, had cut its prices to back up that
offer to raise crude production beyond its current 9.5-mil b/d output level,
the OPEC delegate said: "Yes."
     Riyadh has made this offer several times already, but Naimi has argued
that there is no demand for the additional barrels, which would consist of
mainly sour and heavy oil.
     Circumstances changed as a result of the hurricane, the OPEC delegate
said, and Saudi Arabia was now giving buyers "more incentives." 
     The combination of the US having eased specifications on some refined
products in the wake of the hurricane and the lower formula pricing for Saudi
crude "will make more oil available."
     The OPEC delegate was unable to say, however, whether Saudi production
would definitely rise in October as a result of the price cuts, saying this
would depend on buyers. But, he said, noting that the crude pricing formulas
of different producers were interlinked, "it will definitely encourage more
heavy crude buying [though] maybe not Saudi oil.... This extends beyond Saudi
oil alone."

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