Bush's plea for Saudi help results in another dry hole

RIYADH, Saudi Arabia — Regular gasoline sells for less than 50 cents a gallon in the capital of the world's largest producer of oil, pumping out 9 million barrels a day.

But, after a visit with the Saudi monarch, President Bush has found little hope of bringing significant relief back home, where Americans are paying close to $4 a gallon.

The Saudis have agreed to a relatively modest boost in oil production, announced in the midst of meetings Friday with King Abdullah over tea, lunch and dinner and an overnight stay for Bush at the palatial horse farm where the Saudi ruler keeps 150 Arabian stallions in air-conditioned stalls.

But, for the second time in five months, the Saudis have rebuffed the Bush administration's request for significantly stepped-up oil production to ease rising oil prices. The Saudi oil minister said production already had been boosted marginally by about 300,000 barrels a day, as of May 10, to meet world demand, as they see it. This will boost output to 9.45 million barrels a day in June.

The Saudis have made clear they see no great world demand for increased production, Stephen Hadley, the president's national-security adviser, said after private meetings between Bush and Abdullah at the king's ranch. And they are not bowing for one customer, albeit the world's biggest consumer.

"What they're saying to us is ... Saudi Arabia at the present time does not have customers that are making requests for oil that they are not able to satisfy," Hadley said. And despite the production boost announced "in order to meet the demand of their customers, in their judgment ... even increased production under this policy would not result in dramatic ... reduction of gas prices in the United States."

The talks were conducted in private, but both sides spoke afterward. Prince Saud al-Faisal, the Saudi foreign minister, was asked how forcefully Bush had made his case.

"The discussion was carried out in a friendly fashion," Saud said. "I don't know what you mean by forcefully — he didn't punch any table or shout at anybody. ... The president showed great concern for the impact on the American economy ... and we, of course, sympathized with that completely. But on our part, we are doing everything we can to help the international economy by producing as much as is needed."

During the talks, the discrepancy between gas prices in the land of plenty and in the land of the "oil-addicted," as Bush has called the United States, could hardly be more dramatic: Gas fetches about 46 cents a gallon on the furnace-hot streets of Riyadh, and a gallon of regular in the U.S. has reached an average of $3.79, according to AAA.

The Bush administration repeatedly has tried to convince the Saudis that the impact of soaring gas prices on the U.S. economy is bad, in the long run, for profits of oil producers.

But the president's appeals for stepped-up production — Bush personally made one to the king in January, when the price of oil was less than $100 a barrel — conflict with a firm Saudi practice of matching oil output with demand and maintaining stability in the world's oil market, while heeding to production quotas set by the Organization of Petroleum Exporting Countries (OPEC).

The Bush administration also suggests that the U.S. must step up domestic production. Bush has pressed for drilling in the Arctic National Wildlife Refuge, with staunch opposition from environmentalists and Democratic leaders.

As a result, traders expect prices to keep moving higher.

Goldman Sachs, one of the world's most influential investment banks, underscored that sentiment Friday when it raised its oil-price forecast for the second half of the year to $141 a barrel, up from $107 earlier.

Translation: Buy. And buy they did Friday. The price for a barrel of benchmark light, sweet crude for June delivery jumped $2.17 to settle at record close of $126.29 on the New York Mercantile Exchange.

While stepped-up production could alleviate pressure on rising prices, analysts say, the Saudis, who produce one-tenth of the world's oil, have no incentive to assist the United States alone.

"The reality is, the market isn't being driven by us," said Anthony Cordesman, a senior fellow at the Center for Strategic and International Studies. "It's being driven by China, by India, by rising Asian demand, which guarantees a market into the long term."

Oil is the mainstay of the Saudi economy. It was first discovered here in the 1930s, but large-scale production started after World War II. Now, more than $200 billion in oil products a year is exported, 90 percent of the nation's economy.

The Bush administration is honoring the 75th year of formal relations with the Saudis — cemented with a deal Friday to cooperate on security, nuclear energy and nonproliferation of nuclear weaponry — but the Bush family and the House of Saud also go way back.

The 84-year-old Saudi ruler, then crown prince, visited then Vice President George H.W. Bush in 1987. The crown prince visited the current president in 2002 and again in 2005, at the president's Texas ranch.

High oil prices in the 1970s made the Saudi economy the fastest growing, but also promoted more production around the world, leading to a glut in the '80s. The Saudis, who had been producing nearly 10 million barrels a day in 1980 and '81, cut production to about 2 million a day in 1985. And the Saudis submitted to OPEC quotas in an effort to maintain stability in the world market.

In recent years, the Saudis have pledged to raise their full capacity for drilling from 11 million barrels a day to 12.5 million by the end of 2009. In the meantime, however, they actually are producing only 9 million barrels a day.

Now, with a modest boost, they say they will increase to 9.45 million a day in June.

"Every month, we receive [orders] from our customers worldwide," said Ali I. al-Naimi, Saudi oil minister. "On May 10th we increased our response to our customers by 300,000 barrels, because they asked for it. ... Most of the 300,000 came from the U.S. ... How much more can we do?"

Still, the difference between what the Saudis pump and their capacity to produce — about 2 million barrels a day — represents nearly all of OPEC's potential surplus.

And that 12.5-million barrel-a-day capacity should suffice well into the near future, the Saudis say.

"Saudi Arabia has no policy not to expand, but we are very pragmatic in this area," al-Naimi said. "We need to make sure that the demand is there. ... We have always maintained about 2 million barrels per day of extra capacity, and we intend to do so in the near future."

Details about trading Friday were provided by The Associated Press.