Published May 19, 2004
Saudis unable to contain oil price surge: analysts
Country's spare output is heavier crude suited for heating oil rather than petrol
AS pressure builds on Opec to dip into some of its spare production capacity, Saudi Arabia, the world's largest oil exporter, will be able to do little to stem rising oil and petrol prices this summer, the Financial Times daily said.
Analysts told the paper that the kingdom acted too late and produces the wrong type of oil to make gasoline.
Saudi Arabia will try to persuade other members of the Organisation of Petroleum Exporting Countries at a meeting in Amsterdam this week to increase the cartel's output ceiling by 6 per cent. Though Kuwait supports the idea, others including Venezuela are proving reluctant.
The paper said Saudi Arabia is one country with enough spare capacity to make any serious increase and some others, which cannot cash in, do not want to see a significant price drop.
In spite of concerns about alienating its Opec brethren, Saudi Arabia has reportedly told customers in Europe and the US that it would make extra barrels of oil available next month.
But the six-week journey to the US east coast would mean the barrels arrive only in late July at the earliest, well after the beginning of the summer holiday driving season at the end of this month, the FT said.
The kingdom said most of these extra barrels were of the heavier oil grades, which analysts expect to be the oil type that is likely to make up the bulk of any extra Saudi output.
Seth Kleinman, energy analyst at PFC Energy, told the paper the majority of Saudi spare production was a heavier crude, which is preferred for making heating oil rather than gasoline, which is mostly made from a light crude.
Saudi Arabia is able to produce 10 million barrels of oil a day or 2.7 million bpd above what it produced last month.
Mr Kleinman said three-quarters of total Saudi output capacity was of the lighter crude variety, and most of this already was being produced. This left spare capacity mainly in the heavier grades.
'It's not ideal,' said Mr Kleinman. 'The (US) Gulf refineries are the most sophisticated plants in the world, and they can refine anything, but it will cost more to refine (heavy crude),' he said.
He told the FT that US refineries were more likely to seek extra volumes of lighter sweet crudes from west Africa, so the higher output of Saudi heavy and medium oils would be destined for east Asia, in particularly China where the country still relied on its oil-fired power generators, which used fuel oil, a product more suited for heavy sour crude.
US gasoline demand is up about 4 per cent above its levels a year ago and is expected to reach a record during this summer of over 9.4 million bpd, or about 12 per cent of global crude demand.
This surge has put pressure on the US refinery system and sent gasoline prices to 21-year highs.
Prices eased a bit yesterday but analysts said fuel demand and hedge fund speculation was likely to hold US crude above US$40 a barrel for the time being.
US light crude futures eased 35 cents to US$41.20 a barrel after peaking at US$41.85 a barrel on Monday. London Brent crude slipped 38 cents to US$37.53.
Meanwhile, Opec expects world oil demand to grow by nearly 1.9 million barrels a day in the third quarter of this year.
A monthly Opec report said world oil demand would rise to 80.18 million bpd, up from 78.3 million in the second quarter.
The group saw another jump in fourth quarter demand to 82.44 million bpd, putting total world demand growth this year at 2.3 per cent - the strongest in seven years.
Opec said the rise in prices did not appear to be hurting world growth, especially when a fall in the value of the US dollar over the last year was taken into account. - FT, Reuters
