Saudi Arabia to boost oil output. Will gas prices fall?
At a rare meeting Sunday, some oil-producing nations tried to stabilize prices – and Western concerns over a recession.
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"Fundamentally tight market conditions, in our view, are the main driver of price increases that we have seen over the last five years and particularly during recent months," Mr. Bodman told reporters.
The kingdom – the only major exporter with enough capacity to significantly increase production – is under intense pressure from Western governments to increase output. Angered by high oil prices, Congress has initiated moves – so far unsuccessful – to force Saudi Arabia's hand. These have included a proposed halt to a major US arms sales package to Riyadh and draft legislation to allow US prosecutors to charge OPEC countries with antitrust violations.
Members of the Organization of Petroleum Exporting Countries (OPEC), the cartel of 13 major producers, say that while supplies are tight, they are meeting demand. Rather, producers say, prices are being driven up by financial investors who have moved from the now-defunct US subprime mortgage market into unregulated speculation in the oil futures market.
US officials reject this argument. "We see no evidence that financial market participation in the commodity market, the oil market in particular, has led to some systematic bias in energy prices," says Undersecretary of State for Economic Affairs Rubin Jeffrey, who is also here.
If there is one word that has long described Saudi Arabia's oil policies, it is "stability." The Saudis have prided themselves on being a reliable source of oil. They like price rises, but they dislike the wild swings that bring market uncertainty.
Only 10 years ago the Saudis were in dire economic straits. Oil was $10 a barrel and the kingdom's debts were the equivalent of 130 percent of its gross domestic product, mostly because it had financed the $60 billion-plus cost of the 1990-91 Gulf War to eject Saddam Hussein from Kuwait.
Their greatest fear, say observers, is a severe drop in oil prices that would throw their ambitious development projects, including the building of six new megacities, into disarray. Despite the cash windfall, the Saudis fear high prices will sour political ties with important allies like the US and accelerate the development of alternative fuels.
On Sunday, British Prime Minister Gordon Brown called for a "global new deal" between consumers and oil producers based on "a shared interest in a more diversified range of nonoil energy sources." He said oil exporters should be able to "recycle" their windfall oil profits "into alternative energy investments in developed market economies." In turn, Britain should offer the producers "genuine openness and partnership in our investment markets."
Cognizant of the hardship caused by high oil prices, the Saudi king called for an international initiative to help developing countries meet their energy needs, pledging $500 million in soft loans. He also suggested that OPEC contribute $1 billion.
• Material from the Associated Press was used in this report.