Saudi Arabia uneasy with high oil prices

Brent crude for June rose 27 cents to $123.93 a barrel by 4:09 p.m. GMT, having reached $124.40.

US crude for June dipped 15 cents to $112.13. While Tuesday’s intraday peak was $112.64, US crude reached $113.48 on Monday, the highest intraday price since September 2008, before the contract ended the day down 1 cent.

“We are not comfortable with oil prices where they are today … I am concerned about the impact it could have on the global economy,” Reuters quoted Al-Falih as saying at an industry gathering in South Korea.

There was no tightness in global oil markets, Al-Falih said. His comments echoed those of Minister of Petroleum and Mineral Resources Ali Al-Naimi, who said last week that the Kingdom had cut oil output in March as the market was oversupplied.

John Sfakianakis, chief economist at Banque Saudi Fransi, said: “Saudi Arabia will continue to play a systemic role in the global oil market and provide the necessary crude oil that is demanded. This was seen more recently during the outset of the Libya crisis when Saudi Arabia increased its supply to cater to the lost crude oil and in March and early April, its production fell as global demand fell. I do expect that Saudi Arabia will increase both its crude oil sales in the rest of April and May as well as increase its production locally.”

However, Sfakianakis said the challenge for the global economy due to high oil prices is very real and that there is much that remains to be done to address the issue of speculation. He added a weak dollar pushes up oil prices and commodities, which Saudi Arabia has less control over.

He said the world should look less at Saudi Arabia when prices are exaggerated, as they are now, and more toward the other causal factors for such high oil prices.

“Rising oil prices are a definite risk to the global economy. Higher oil prices mean the transfer of revenues from consumer countries to producer countries, who tend to save more. In addition, they lead to reduced spending on other goods and services and stimulate inflation, potentially resulting in higher interest rates, which would further dampen economic growth,” Paul Gamble, head of research at Jadwa Investment, told Arab News.

“As prices are controlled in many of the Asian countries that are currently driving global economic growth, the effect on their economies has not been too great that far. In the US, where light taxation means that prices at the pump are most heavily influenced by international oil prices, high gasoline prices are eating into consumer spending. Should oil prices continue to rise, the risks to the health of the global economy will mount.”

Unrest in North Africa and the Middle East and strong demand growth in Asia have pushed oil prices to their highest levels since 2008, triggering concern among consumers costly oil would harm economic growth and crimp fuel demand. OPEC producers also warned last week of the strain of high energy prices on economies still fragile as they emerge from the global financial crisis, Reuters reported.

Al-Falih said Aramco is considering building three new joint venture refineries in Asia as part of plans to boost its global refining capacity by 50 percent to over 6 million barrels per day (bpd). Asia is Aramco’s largest and fastest growing oil market. Two out of every three barrels that Saudi Aramco exports go to Asia, he said.

Aramco is considering building new joint-venture refining projects in China, Vietnam and Indonesia, as well as another plant at home in Jazan, Reuters quoted Al-Falih as saying.

Combined, the new plants Aramco is considering and those under way would boost Saudi global refining capacity to over 6 million bpd from around 4 million bpd, Al-Falih said.

Aramco also continued to expand its domestic gas system, which would have capacity to pipe above 15 billion standard cubic feet per day in the next five years, he said.

Aramco executives are in Seoul for a board meeting on Thursday, Reuters reported.

May 26 2012, Arab News