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Unrest and $100 oil loom over Saudi talks

Official agenda tackles regulation, market transparency.

February 18, 2011 10:00 by



A tide of unrest that has swept the Middle East and stoked oil prices above $100 a barrel is likely to dominate talks in Saudi Arabia next week designed to narrow the gap between consumer nations and resource-holders.

The nearly 100 countries invited to the International Energy Forum on Tuesday include all 12 members of the Organization of the Petroleum Exporting Countries, led by Saudi Arabia.

Not all are expected to attend, with the oil minister of Iran, OPEC’s second biggest exporter after Saudi Arabia and holder of the group’s rotating presidency, among those expected to stay away, sources have said.

That means any OPEC discussion on the sidelines of the official agenda will be informal, although Saudi Arabia could still make a unilateral output pledge as it has done in the past to try to calm markets.

The leading exporter, with around 4 million barrels per day (bpd) of spare capacity, has said it is always ready to supply extra oil in case of need and its output has been steadily increasing, although its exports have not.

Saudi Oil Minister Ali al-Naimi, who will initiate the official proceedings with a speech on Tuesday, has not spoken publicly since the end of January when he said the market was well-supplied.

Other ministers and officials in comments this month have seen no need for emergency action and noted the popular revolts that have spread across the region since the toppling of the Tunisian and Egyptian presidents have not disrupted supply.

“When the ministers meet in Saudi, I think all the market issues will be discussed, but for now there is no panic or worry,” said Ramzi Salman, advisor to Qatar’s oil minister.

DEPUTY U.S. ENERGY SECRETARY

The world’s biggest oil consumer the United States is sending its deputy energy secretary, rather than Energy Secretary Steven Chu, to Riyadh.

A department of energy spokesman made a low-key statement, saying Deputy Energy Secretary Daniel Poneman will hold bilateral talks on “topics including the current state of conventional markets and efforts to foster the transition to a low-carbon energy future”.

Saudi’s relationship with the United States is still crucial, but its ties with the world’s second biggest oil user China are deepening.

Analysts said that now Saudi has lost its big regional ally Hosni Mubarak of Egypt, the shift towards Asia, the energy market of the future, could accelerate.

“There is a loss of faith (among Saudis) in the U.S. leadership,” said Simon Henderson, a Washington-based author of studies on Saudi Arabia.

Some tension between the United States and Saudi Arabia has resulted from a U.S. desire to wean itself off imported oil.

The kingdom wants guarantees of demand if it is to invest billions in maintaining spare capacity for when the world needs it — planned refinery joint ventures in China can provide them.

VOLATILITY

The official IEF agenda also includes discussion of markets and regulation, bringing together members of OPEC and of the International Energy Agency, which represents consumer countries.

The IEF, whose permanent secretariat is based in Riyadh, says it has battled to reduce market volatility with efforts such as the Joint Oil Data Initiative (JODI) to improve market transparency.

Critics, however, have dismissed the forum as a talking shop and noted volatility is high.

Brent crude has risen by around $10, or roughly 10 percent, to a two-and-a-half-year peak above $104 a barrel this week, from a two-week low touched on Jan. 25 — the day protest erupted in Egypt against President Hosni Mubarak’s 30-year rule.

Following the president’s ouster last week, protests have erupted across North Africa and the Middle East, but any dissent in Saudi has been low-key.

Although Brent  has risen to the highest level since September 2008, it is still far short of the all-time high reached in July of that year of nearly $150 a barrel .

At around $85 a barrel, U.S. crude, unusually, has been much weaker than Brent and is not too far above the range of $70-$80 Saudi Arabia has regularly said is ideal for producers and consumers. The level, it says, encourages investment in new supply and yet is not so high it destroys demand.

The pace of the 2008 rally prompted Saudi Arabia to call emergency talks in the Saudi port of Jeddah in June 2008 when Naimi said the kingdom was ready to increase output to try to tame the market.

Prices continued to rise in the immediate aftermath, but crashed to just above $30 in December that year as world financial crisis took hold.

The crash prompted OPEC to agree its biggest ever output cut of 4.2 million barrels per day in December 2008.

It has not officially changed its output policy since, although it has gradually increased the amount it is producing above targets.

OPEC has not convened a formal session, which could officially change output policy, until June.

(Additional reporting by Tom Doggett in Washington, Reem Shamseddine in Khobar, Humeyra Pamuk and Amena Bakr in Dubai)



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