CAIRO, July 19: Saudi Arabia played it cool and refused to be drawn into a price war to preserve its status as kingpin of the oil market, after Russia broke its deal with Opec and hiked its production this week.
Moscow abandoned an agreement with the Organization of Petroleum Exporting Countries (Opec) to cut exports, raising output by 150,000 barrels per day (bpd) from the beginning of July.
There have been strong gains in oil prices in recent weeks, but Russia made the decision despite an International Energy Agency forecast that demand for oil will grow by only 250,000 bpd this year, much less than its initial expectation of 420,000 barrels.
Crude prices were further shored up after US Federal Reserve Chairman Alan Greenspan predicted on Wednesday that the US economy was set for faster growth than previously expected.
But the Saudis kept a lid on their response to the Russian challenge largely, oil experts said, because it is not likely to affect the market much.
“With its decision to increase production by 150,000 bpd, Russia is now producing at full capacity, but this will have little impact on the market in the short term,” said Abdullah bin Ali of the Saudi-based Arab Petroleum Investment Corp.
“I believe Opec is strong enough to support the price above 22 dollars a barrel, and any action by the cartel and Saudi Arabia will rest on demand for oil and the US economy,” he said.
The Saudi kingdom and three of its main foreign partners in three mega-gas projects, meanwhile, were also under pressure to ensure a current round of talks leading to a deal, according to analysts and industry sources.
New talks between the Saudi ministerial team and the chief executive officers of ExxonMobil and Royal Dutch/Shell opened in the Red Sea city of Jeddah on Sunday. The talks are likely to resume next week, a source said.
ExxonMobil has the lead in two projects, while Royal Dutch/Shell has the lead in the third project, altogether requiring initial investments to the tune of 25 billion dollars.
Two deadlines in December and March passed without agreement between the oil-rich kingdom and eight international oil firms, which signed a preliminary accord in June 2001 to develop the gas fields.
Profitability, risks involved in the investments expected to last 25-30 years, and details about the “rate of return” from power plants, water desalination and petrochemicals are at the core of the tough negotiations.
Also in the kingdom, Saudi Basic Industries Corp (SABIC) said on Monday it had signed an agreement to export 500,000 tons of Methyl Tertiary Butyl Ether (MTBE) to Iran in the next five years.
Iran will use the chemicals to produce unleaded fuel in a bid to overcome high pollution levels in Tehran. The value of the deal was not disclosed.
In other oil news, the volume of Iraqi oil exported under UN supervision dipped to 5.1 million barrels from 6.3 million barrels in the week ending July 12, the office administering the UN’s oil-for-food programme said Wednesday.
Iraq earned an estimated 122 million euros (dollars) in revenue, compared with 152 million euros (dollars) the previous week.
A statement by the company of billionaire Saudi businessman Prince Al-Walid bin Talal bin Abdul Aziz said he had increased his stake in Citigroup by 500 million dollars, his company said on Thursday.
Kingdom Holding, which manages the prince’s worldwide investments, said his stake in the US financial services giant now exceeded 10 billion dollars.
Citigroup on Wednesday topped estimates for its second-quarter earnings despite a big write-off for its WorldCom bonds.
In Bahrain, a senior official said the country’s total debt at the end of 2001 was estimated at 900 million dinars (more than two billion dollars), some 30 per cent of the tiny Gulf monarchy’s gross domestic product.
But Manama also announced it was creating a global Islamic financial market to reinforce its status as a regional banking centre.—AFP