Crude Oil Falls as Naimi Says Record Prices Are `Unjustified'
By Mark Shenk
June 13 (Bloomberg) -- Crude oil fell as Saudi Arabian Oil Minister Ali al-Naimi said record prices are ``unjustified'' and the state oil company signaled it may soon start pumping from a new field.
The June 22 ``meeting in Jeddah will discuss the price rise, which are unjustified by fundamentals, and suggest appropriate solutions,'' al-Naimi said in a statement today. [u][color=blue]The kingdom will start pumping oil from its new 500,000 barrel-a-day Khursaniyah field within the next month, a board member of Saudi Aramco said.[/color][/u]
``The Saudis are trying to get some of the heat out of the market and off of them at the same time,'' said Antoine Halff, head of energy research at Newedge USA LLC in New York. ``The meeting is an attempt to get beyond the blame game and find solutions to the problem of high prices.''
Crude oil for July delivery fell $1.88, or 1.4 percent, to settle at $134.86 a barrel at 2:46 p.m. on the New York Mercantile Exchange. Futures reached a record $139.12 a barrel on June 6. Oil fell 2.7 percent this week.
Prices have moved more than $3 each day this week as the market digested Saudi announcements, falling U.S. crude-oil stockpiles, increasing price forecasts from Wall Street banks and a strengthening dollar.
``This meeting is expected, God willing, to produce positive results that will contribute to stabilizing the international oil market,'' al-Naimi said.
Saudi Arabia invited nations including the U.S., Russia, Norway, U.K., China, Germany, India and Japan to the meeting, al- Naimi said. The kingdom is the world's largest oil exporter and the most influential member of the Organization of Petroleum Exporting Countries.
OPEC Gridlock
``The meeting underscores the central position the Saudis hold,'' Halff said. ``It's clear that OPEC is somewhat paralyzed and too divided to take action. The meeting is a way to bypass OPEC and end the gridlock.''
Members of OPEC, which pump more than 40 percent of the world's oil, have kept production targets unchanged at the group's past three meetings, on Dec. 5, Feb. 1 and March 5.
``There is a need for an increase in oil production, but price gains are outstripping the growth in demand,'' Russia's Finance Minister Alexei Kudrin said in Osaka, where he is attending a meeting of Group of Eight finance ministers.
``The position that more development, more investment and an increase in supply are needed is becoming universal and is something we support,'' said Kurdin.
`Sizable' Increase
Saudi Arabia is likely to propose a ``sizable'' increase in oil production at the meeting, the Middle East Economic Survey reported today, without saying where it got the information.
Current oil prices threaten the global economy and hurt the long-term interests of oil producers, Ibrahim al-Muhanna, an adviser to al-Naimi, was cited as saying by the newsletter.
Khursaniyah will start ``very, very soon, definitely within the next month,'' Khalid A. Al-Falih, who is also an executive vice president at Saudi Aramco, said in a telephone interview today. He couldn't say when full production would be reached. The field is forecast to produce as much oil as the daily output of Ecuador, OPEC's smallest member.
Oil in New York rose more than sevenfold since trading at $17.45 a barrel in November 2001, and reached 28 record highs this year. A similar pattern was seen in equities eight years ago, when Internet-related stocks sent the Nasdaq Composite Index up 640 percent to its highest level ever, according to data compiled by Bloomberg and Bespoke Investment Group LLC.
``I think that at about $80 the market crossed into the irrational exuberance level,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``It's hard to find a rational explanation for the gain of the last six months.''
Falling Demand
Oil demand this year will rise 1.1 million barrels to 86.88 million barrels a day, OPEC said in a report today. That's about 60,000 barrels a day lower than last month's estimate.
Global oil-market volatility, reflected in price moves of more than 2 percent in two-thirds of the trading days this month, has snarled attempts by industry players to plan for the future.
Volatility is a measure of how far the price of a commodity such as oil deviates from average closing prices over a prior period, such as 30 or 365 days. Futures traded in New York veered 41 percent from the 30-day average today, according to Bloomberg data. They strayed 41.7 percent from the average June 11, the highest volatility in 16 months.
Brent crude oil for July settlement declined $1.84, or 1.4 percent, to $134.25 a barrel on London's ICE Futures Europe exchange.
Rising Dollar
Prices also dropped because the rising dollar reduced the appeal of commodities to investors looking for an inflation hedge. The U.S. currency is heading for its biggest weekly gain versus the euro in more than three years as inflation accelerated in May, raising speculation the Federal Reserve will increase borrowing costs this year.
The dollar increased 0.6 percent to $1.535 euro at 2:57 p.m. in New York, from $1.5439 yesterday.
To contact the reporter on this story: Mark Shenk in New York at
[email protected].
Last Updated: June 13, 2008 15:49 EDT
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