Al-Naimi also said that extreme swings in oil prices offer no benefits for producers or consumers, who both benefit from stable prices. Producers learned in the 1970s and early 1980s that high prices can sow the seeds that will eventually undo bullish conditions. “Demand was strong, prices were high and supply was tight -- very much like the conditions we are experiencing today. Yet, [producers’] sense of security did not last long, as high prices inevitably undermined demand while stimulating capacity expansion,” al-Naimi said.
Conversely, low prices from the mid-1980s through 2000 discouraged investment in capacity and encouraged demand growth, setting the stage for a huge price rally and fostering a growing sense of “energy insecurity” among consumers, he said. The minister said that there are three pillars for sustainable energy security; they are “price stability, supply and demand reliability, and affordability.”
Al-Naimi said that Saudi Arabia is committed to working with the US to keep oil markets stable and plans to increase production to 12.5 million barrels a day by 2009. “Political tensions, a tight petroleum product market, and talk of the world running out of oil are fostering an environment of fear and uncertainty in oil markets and among consumers” today said al-Naimi.
Secretary Bodman said that the market is worried about a supply disruption -- in part because of the standoff with Iran over nuclear issues and in part because of the war in Iraq. He added that “there’s no doubt a (fear) premium” is reflected in today’s prices.
Both men agreed that protecting the world’s oil infrastructure from terrorist threats is crucial to helping foster long-term price stability. Secretary Bodman said the US views Saudi Arabia as a leading ally not only in the war against terrorism, but also in efforts to stabilize global oil prices. He noted that Saudi Arabia, which produces about 9 million barrels a day, is the only producer with significant spare production capacity.
At the same conference, former US Secretary of Energy James Schlesinger said this is the first time that record energy prices have been caused by user demand -- previous price spikes in 1972 and 1979 were triggered by supply disruptions.