Saudi Arabia to ask OPEC to increase production of oil

By Abdullah Shihri
The Associated Press

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Analysts, however, predicted an increase would have little effect on soaring gasoline prices in the United States. Prices are up 45 cents a gallon nationally from a year ago, to $1.941, and at $2.13 in Washington state.

When adjusted for inflation in 2004 dollars, the highest U.S. average retail gasoline price was $2.99 a gallon in March 1981, the Energy Information Association said.

The change in Saudi oil policy, Oil Minister Ali Naimi said, is due to concern that high prices could hurt the world economy and reduce demand for oil. Oil prices have risen steadily in recent weeks, with U.S. crude-oil prices touching $40 a barrel Friday.

Naimi said recent price increases were a "major concern" to Saudi Arabia.

"We do not want to see prices rise to the level that they negatively affect the growth of the international economy or the demand for oil," he said.

He said the production increase, which he planned to propose at a June 3 meeting of the Organization of Petroleum Exporting Countries, should "not be less than 1.5 million barrels a day."

That would more than offset the 1 million barrel-a-day cut in OPEC's production target that went into effect April 1.

Analysts said a boost in the production ceiling might have little real effect, as most OPEC countries are already producing well over their quotas. "It's going to change the quotas more than it's going to change production," said Adam Sieminski of Deutsche Bank in London.

The change in Saudi oil policy came only weeks after Washington Post journalist Bob Woodward said in a new book that Saudi Arabia had made a deal with the White House to increase oil production to drive down U.S. gasoline prices and help President Bush win re-election. Saudi and U.S. officials denied that.

Analyst Jan Stuart of FIMAT USA, a New York brokerage, said the Saudi decision was "very curious."
 
"It's diametrically opposite to everything Naimi has been saying" about supplies being adequate to meet demand, he said. "It's the first noise from anyone in OPEC about raising output."

Naimi said the primary reason for higher oil prices is "the market's unwarranted fear of disruptions in supplies from some oil-producing countries and regions at a time when only the kingdom and probably two or three other countries have spare production capacity."

OPEC pumps about a third of the world's oil, and Saudi Arabia is its biggest producer and de facto leader.

Material from Reuters is included in this report.