US gasoline consumers should not blame oil exporters for higher fuel prices, Saudi Arabian Minister of Petroleum and Mineral Resources Ali al-Naimi said Apr. 27.
"Oil markets are complex and not subject to control by anyone," Al-Naimi told a policy symposium organized by the Center for Strategic and International Studies in Washington, DC. Even Saudi Arabia and other members of the Organization of Petroleum Exporting Countries, with their vast reserves have "only a limited ability to keep prices in their preferred range."
Al-Naimi said Saudi Arabia remains committed to sustaining a $25/ bbl OPEC basket price and to the price band of $22-28/bbl. But other market forces are at play today that are influencing prices beyond the simple market fundamentals of supply and demand, he suggested.
OPEC only 'one factor'
"I must caution you that OPEC is only one factor that impacts oil prices and that higher crude oil production does not guarantee that there is more gasoline available for US consumers," he said. Other factors include fears of instability in key oil-producing countries and regions, the movement of large investment funds into commodities like oil, and just-in-time inventory practices, he said.
—Saudi Arabian Minister of Petroleum and Mineral Resources Ali al-Naimi
Al-Naimi also defended OPEC's recent decision to cut oil output, saying the action was not purposely designed to push prices higher. Rather, it was done to maintain a balance between supply and demand based on what was then the "best information" from the world's leading industry experts, the International Energy Agency, and the US Department of Energy's own Energy Information Administration, he said.
Al-Naimi also blamed US federal and state environmental rules for higher US gasoline prices, saying state and federal rules require refiners to "struggle" to produce sufficient quantities of speculation gasoline in "bal- kanized" markets.
To help better manage finished product supplies, Al-Naimi said Saudi Arabia wants to build two new 500,000 b/d refineries in the US, although the offer is contingent on what US government officials speculated could be elusive permit approval.
"Saudi Arabia is willing and ready to invest in two new refineries and their associated marketing facilities in the US to help alleviate some of the bottlenecks in product availability," Al-Naimi said. While welcoming the gesture, US officials and industry experts appeared skeptical that the Saudis could follow through on their commitment.
"We welcome US investment, and if you can figure out the regulatory regime, good luck, let us know how you did it," said US Deputy Energy Sec. Kyle McSlarrow at the same CSIS conference.
McSlarrow agreed with the Saudis that the US faces refinery constraints that need to be addressed, but the DOE official maintained that it's world crude prices, not refinery capacity that are the primary driver for higher gasoline costs.
Later the same day McSlarrow and Al-Naimi held a 30 min private talk; DOE officials afterward declined to discuss specific details of those discussions although they said the Saudis reiterated their commitment to adequate crude supplies and market stability.
Greenspan speaks
The theme of the CSIS event, cosponsored by the US-Saudi Arabian Business Council, was the link between affordable energy and economic growth. Following remarks by Al-Naimi and Rex Tillerson, president of ExxonMobil Corp., US Federal Reserve Chairman Alan Greenspan gave a circumspective keynote address in which he advocated a US policy that ensures adequate access to world hydrocarbon reserves.
"The dramatic rise in 6-year forward futures prices for crude oil and natural gas over the past few years has received relatively little attention for an economic event that can significantly affect the long-term path of the US economy," said Greenspan. "These elevated long-term prices, if sustained, could alter the magnitude of and manner in which the US consumes energy."
Greenspan repeated concerns he expressed to the US Congress last fall that near-term gas availability is "apt to continue to be challenging." He also again endorsed expanding LNG imports as a way to modulate market fluctuations brought on by tight supply.
He said that if North American gas markets are to function as flexibly as oil does, more-extensive access to world gas reserves is needed.
"Markets need to be able to adjust effectively to unexpected shortfalls in domestic supply in the same way that they do in oil," he said.
To that end, Greenspan said that with a major expansion apparently already under way to boost LNG shipments, that "these movements bode well for widespread natural gas availability in North America in the next decade and beyond."