Last week, despite temperatures unusually touching freezing point, eyes remained focused on Janadriyah, the otherwise desolate place outside Riyadh, for a host of reasons. After all it is not every day that the President of the United States and the King of Saudi Arabia sit down — formally and casually — to discuss regional, global and bilateral issues.
And while regional geopolitics dominated discussions, oil markets also eagerly awaited the outcome of the deliberations. For a lot depended on the meeting. With prices whizzing by the $100 mark, only a couple of weeks ago, crude markets were definitely treading in unchartered waters. And in the circumstances, both Custodian of the Two Holy Mosques King Abdullah and President Bush were stressing on stability in the markets — in their own ways.
With crude prices crossing one hurdle after another and winds of recession almost appearing to reach US shores, it was not practical for Bush not to take up the subject in his meetings with the King — publicly as well as privately. And this is what he did!
He publicly pleaded with the OPEC on Tuesday to open up taps, so as to tame the rising gas prices — hovering around $3 a gallon — at gas stations in the US. Indeed for the world’s largest gas guzzlers, high prices at the next door gas station hurts the pockets. For any president it is a difficult situation — especially in an election year.
“I would hope, as OPEC considers different production levels, that they understand that if . . . one of their biggest consumers’ economy suffers, it will mean less purchases, less oil and gas sold,” Bush told reporters at the Royal Palace in Riyadh during an impromptu press conference.
“There is not a lot of excess capacity in the marketplace,” Bush said. “What’s happened is, is that demand for energy has outstripped new supply. And that’s why there’s high price,” Bush emphasized, urging OPEC to open its taps further.
And the President didn’t stop here. He reportedly also took up the issue of oil prices with the King directly too in private discussions.
“The king says that he understands the situation. He’s worried about high oil prices and how they can negatively affect economies around the world,” White House Press Secretary Dana Perino said aboard the presidential jetliner. “The president said there’s a hope that as a result of these conversations, OPEC would be encouraged to authorize an increase production and help deal with the tight supply problems in this time when we have growing economies across the world, especially in China.”
The US request(s) to open up the taps were however, accompanied by news of a faltering market indicating a weakening demand. Oil slid more than $2 to below $90 on Wednesday, for the first time since mid-December, due to a large rise in crude stocks in the US amid signs that slowing US economic growth is eroding fuel demand. The US government data showed crude oil stocks rose for the first time in nine weeks as imports increased. The crude inventories in the world’s top consumer increased by 4.3 million barrels to 287.1 million barrels in the week ending Jan. 11.
An earlier poll of analysts had forecast a crude build of just 600,000 barrels.
The International Energy Agency, on Wednesday also cut its 2008 global demand growth forecast by 130,000 barrels per day to 1.98 million bpd and said it may lower the figure further.
Meanwhile, the OPEC production in December already rose to an average of 32.03 million barrels per day (b/d) of crude oil in December, a Platts survey of OPEC and oil industry officials said. This is up from November’s rate of 31.65 million b/d.
Production from OPEC’s ten members bound by crude output agreements averaged 27.43 million b/d in December, the survey showed. This is 460,000 b/d more than in November and 177,000 b/d higher than the group’s 27.253 million b/d target which came into effect at the beginning of November.
The softening of the market was also indicated when the US Commerce Department said Tuesday the country’s retail sales fell 0.4 percent in December. The drop was much worse than the 0.1 percent analysts expected and also evidence that not even holiday shopping could encourage wary consumers to spend freely.
Prospects about the US slipping into a recession seemed definitely to be gathering. OPEC thus needed to be cautious before opening up the taps and they are indeed.
While responding to President Bush’s request to the OPEC, the Saudi Oil Minister Ali Al-Naimi said the oranization will raise the production — only if the market justified.
Clarifying his statement, the OPEC heavyweight emphasized crude producers’ will take crude oil stockpiles in consuming countries into account when making its next output decision.
By increasing the output, speculators would continue to play havoc with the markets. Speculators are currently adding around $20 to $30 to the price of a barrel of oil, Ali al-Naimi told reporters on Tuesday.
Hence despite the pleas of President Bush and the upcoming visit of Bodman to somehow leverage OPEC decision, it may not be very easy for OPEC to concede to the request. After all, the organization needs to protect and safeguard the producers’ interest and this is what Al-Naimi seems to have been doing despite the calls from Washington.