Amid doubts, oil powers seek tonic to record prices

The world's top energy policy makers meet in this Red Sea city on Sunday for emergency talks on halting oil's unrelenting rally, but hope for an immediate solution to record prices appeared dim.

• Saudi Arabia will try to coax its few OPEC peers who have spare production capacity to join the kingdom in pumping more barrels, although some in the cartel have been openly sceptical that raising output will rein in prices they believe are driven more by speculation than market fundamentals.
• Riyadh summoned both producers and consumers, plus chief executives from big oil firms, to the meeting after an unprecedented surge on June 6 of nearly $11 sharpened fears that oil prices were jeopardising the world’s economic health.
• Oil has doubled in a year to almost $140 a barrel, driving inflation rates higher around the globe, sparking street protests from Asia to Western Europe, and forcing the world’s major central banks to concede that they may have to start raising interest rates to curb rising consumer prices.
• “I think it’s going to be virtually impossible to find a set of solutions at a meeting like this that will ease high prices in the short-term,” Raad Alkadiri, senior director for country strategies at U.S.-based consultants PFC Energy.
• “This is about market sentiment, and this meeting is probably not enough to change the market sentiment, which is clearly bullish. There clearly is no silver bullet.”
• Recent efforts to slow the ascent have had little impact.
• Saudi Arabia, the world’s biggest oil exporter, said in recent days it would raise output to 9.7 million barrels per day (bpd) in July, its highest rate in decades.
• Major oil consumers in Asia, including the world’s number two user China, have recently raised cheap domestic fuel prices that analysts say aided rapid demand growth, while U.S. regulators are seeking more oversight of futures market speculators.
• PRICES MAY REBOUND
• Fresh ideas appeared in short supply on Sunday, with the final communique likely to shy away from any hard measures and focus on the importance of greater transparency in oil markets and more investment into production and renewable energy sources, according to delegates who had seen the draft.
• “It is a good common statement of concern. It probably won’t meet anybody’s expectations or needs,” a source who had seen a copy of the draft told Reuters.
• German Economy Minister Michael Glos warned that oil prices, which fell from last Monday’s record high near $140 to close at $134.62 on Friday, could rebound.
• “There is the danger that the markets will be disappointed and the price will increase again,” he said.
• Saudi Arabia’s King Abdullah will open the meeting with a televised speech at around 1.40 p.m. (1040 GMT), followed by brief addresses from China’s Vice President Xi Jinping and British Prime Minister Gordon Brown, the highest-level attendees.
• The official two-hour closed-door meeting is due to wrap up with a final communique at around 4.30 p.m. (1330 GMT).
• “NEW DEAL”
• Brown will call for a global “new deal” to address the latest oil shock and end opposing interests of producers and consumers, proposing that big consumers open their markets to investment in alternative energy sources by producer nations.
• “In this way we move from the old conflict of interest between producers and consumers to building what the world needs,” he will say according to an advance copy of his speech.
• Meanwhile a Gulf OPEC official told Reuters on Saturday that the meeting would discuss a proposal for an output boost from other OPEC members who can bring on extra production quickly, namely United Arab Emirates and Kuwait.
• Another OPEC delegate said it was not yet clear whether they would join in any output rise, while members such as Libya and Algeria have said the cartel, which pumps a third of the world’s oil, should not be putting more crude on the market.
• Kuwait Oil Minister Mohammad al-Olaim said his country would “not hesitate” to boost output if it saw the need, but a day earlier he said it was too early to talk of an increase.
• Saudi Arabia, which has a policy of keeping a cushion of spare capacity, may also consider increasing its capacity beyond an existing goal of 12.5 million bpd by the end of next year, the source said, a move that would combat fears the holder of the world’s biggest reserves may be reaching its peak.
• The meeting also highlighted the stark divide between those who believe high oil prices are purely the result of soaring demand from consuming nations and slower growth in oil production from those who see speculators as the primary force behind the rally, a camp that includes most OPEC members.
• Investment funds have pumped billions of dollars into oil and other commodities as they seek to diversify holdings and flee poorly performing asset classes, but U.S. Energy Secretary Sam Bodman said that the focus on speculation was misplaced.
• “There’s no evidence we can find that speculators are driving futures prices,” he said on Saturday.
• U.S. regulators, under political pressure from lawmakers, have recently stepped up oversight of futures markets in an apparent effort to temper the influx of speculative funds.
• “What I’ve heard so far are basically all good ideas, but it will probably not change the price tomorrow morning,” Royal Dutch Shell CEO Jeroen van der Veer told Reuters.