OPEC Wants Oil Price `Solution\' From Saudi Meeting

Date: Wednesday, June 11, 2008
Author: Grant Smith, Bloomberg

OPEC wants a ``solution'' to record oil prices and an examination of the role of energy speculators when governments of oil consuming and producing countries meet later this month in Saudi Arabia, OPEC's secretary general said.

Heads of state from the Organization of Petroleum Exporting Countries, their counterparts from importing nations and bank executives have been invited to attend the June 22 meeting in Jeddah to discuss record energy costs that the world's largest oil exporter says are ``unjustified.'' A previous gathering of world energy ministers in Rome two months ago didn't solve the issue, OPEC Secretary General Abdalla el-Badri said today.

``This one is different. This one is specifically to tackle the high oil prices, why they are high, who is to blame,'' el- Badri said in an interview in London. ``Is this a real shortage in the market, or speculation, or the dollar? What is wrong?''

Morgan Stanley and Goldman Sachs Group Inc., which this month issued forecasts for oil rising to $150 a barrel, have been asked to the meeting, which was called two days ago by Saudi Arabia. Oil futures in New York touched a record $139.12 a barrel on June 6 and traded as high as $135.20 today.

High prices have forced consumers such as UAL Corp.'s United Airlines and Continental Airlines Inc. to cut jobs and Asian importing nations to slash domestic fuel subsidies. The invitation should be extended to hedge funds, who are more influential in the doubling of oil prices in the past year than any shortage of supply, el-Badri said.

Investigating Trading

``We have a lot of oil in the market,'' el-Badri said in a Bloomberg Television interview. ``I prefer that hedge funds be there. I hope that the Saudis will invite them. Let's hear them.''

The Commodity Futures Trading Commission, the U.S. regulator that compiles market data, said May 29 it had been investigating since December whether price surges were a result of manipulation.

``I'm not advocating eliminating speculation from the market but I am against excess use of this instrument to inflate the price,'' el-Badri said.

The U.S., the world's largest energy user, will be represented at the Saudi conference by Energy Secretary Samuel Bodman rather than President George W. Bush.

`Positive Sign'

Bush said yesterday that Saudi Arabia's idea for a producer-consumer dialogue was a ``positive sign,'' adding that the U.S. would ``expect to participate.'' Energy Secretary Bodman today confirmed he would attend and will make the case that supply and demand, not speculation, is driving up prices.

OPEC left oil output quotas unchanged at its last three meetings in December, February and March, saying the market was well supplied. Its next formal policy-setting meeting will be on Sept. 9 in Vienna. Production from 12 OPEC members is collectively close to the group's formal output limit as some nations such as Saudi Arabia and the United Arab Emirates pump more than their targets, making up for shortfalls from Nigeria and Venezuela, according to Bloomberg estimates.

The quota is ``irrelevant'' under today's market circumstances, el-Badri said today. A meeting of energy ministers from producing and consuming nations at the International Energy Forum in Rome in April achieved ``nothing'' to solve high oil prices, he said.

`No Bonanza'

OPEC's 13 members are expected to earn about $1.06 trillion this year in net oil export revenue, 57 percent more than last year, according to an estimate last month from the U.S. Energy Department.

El-Badri said high prices are ``not a bonanza'' for OPEC because they have the potential to ``destroy everything'' by curbing demand for the oil, the main revenue earner for most of the group's members.

The June summit is ``a fig leaf, a publicity stunt, a symbolic gesture,'' Johannes Benigni, managing director at consultants JBC Energy GmbH in Vienna, said in a television interview. ``Producers are currently trying to smooth things over and portray themselves as conciliatory.''

To contact the reporters on this story: Grant Smith in London at gsmith52@bloomberg.net