The Pooh-Bahs of the oil world, both producer and consumer, will be meeting this weekend summoned to Jeddah, Saudi Arabia by King Abdullah and Saudi Arabia's oil minister Ali al-Naimi. The question is why are prices at levels that nobody seems to be able to explain, levels that seriously and negatively impact the world economy, especially those of developing countries. Our Energy Secretary Sam Bodman, seeking clarification, needs take it one step further getting answers to questions that are not usually asked nor discussed. Questions such as:
-OPEC President Chakib Kheklil, has pointed to "the central issue is speculation". His position has been echoed by other OPEC members and many in high position in the consumer class, oil executives, politicians, pundits. Simultaneously the oil exporting nations have accumulated vast reservoirs of wealth into the hundred of billions. In spite of pleadings by governments and world financial institutions for transparency, the operations of the Sovereign Wealth Funds remain opaque as are their goals and investments. The sums are so enormous they are prone to mischief.
Given the importance of oil and oil markets to the wellbeing of the countries in question, what assurances does the oil consuming class have that this wealth is not being used by the sovereign wealth funds, its tributaries or straw men to game the oil futures market supporting paper barrels (oil futures markets) to control and maximize the price of wet barrels (the barrels being loaded unto oil tankers and storage facilities around the world). Certainly in terms of funds available the capability is there, and given the opaque nature of the commodity exchanges around the world it could (is?) be achieved and continue unabated until and unless hard questions are asked.
Therefore, can we have assurances from the oil producing nations that their Sovereign Wealth Funds, are not being used, directly or indirectly to support oil prices on commodity exchanges around the world?
-You, here in Saudi Arabia, are the custodian of the largest reserves of crude oil in the world which is both fortuitous and freighted with responsibility. Yet you have not shared with us a reliable assessment of your reserves and production capabilities in spite of entreaties by governments around the world, the IEA and the G-8. When will you be forthcoming so that those responsible for forward economic planning worldwide will have hard numbers to go by on these vital statistics?
-As an example of the confusion prevailing on this issue, you have generally let it be understood that your current reserves approximate 261 billion barrels. Yet on December 27, 2004, Saudi Minister of Petroleum Ali al-Naimi said in a statement issued after opening new oil fields in eastern Saudi Arabia that the 261 billion barrels still waiting to be pumped might actually turn out to be 461 billion barrels. "There are big chances to increase the kingdom's producible reserves by 200 billion barrels" he said "this will come either through new discoveries or through increasing production from known deposits". Then, more recently theNew York Times reported on March 5, 2007 in a front page article ("Oil Innovations Pump New Life Into Old Wells") quoting Nansen G. Saleri, the head of reservoir management at the state-owned Saudi Aramco, who said that new seismic tools giving geologists a better view of oil fields, real-time imaging software and the ability to drill horizontal wells could boost global reserves. Mr. Saleri said that Saudi Arabia's total reserves were almost three times higher that the kingdom's officially published figure of 260 billion barrels, or about a quarter of the world's proven total. He estimated the kingdom's resources at 716 billion barrels, including oil that has already been produced as well as more uncertain reserves. And thanks to more sophisticated technology, Mr. Saleri said he "wouldn't be surprised" if ultimate reserves in Saudi Arabia eventually reached 1 trillion barrels. Your comments would be welcome, please?
-Yet over the past month the Saudi oil minister proclaimed that after the current announced expansion of Saudi oil production to 12.5 million barrels a day, all future expansion of production capacity would be foreclosed. Given the apparently huge reserves at hand, and the world's growing need for oil is this not a vastly irresponsible policy belying stewardship of an essential world resource that is both arrogant and self serving? Your comments would be welcome.
-By contrast at a different time, in 1970, Saudi Aramco with clear vision of the growing demand for oil to come, prepared a long term plan calling for the kingdom to increase its production capacity to 20 million barrels a day by 1990. Is a copy of this far sighted planning document still available?
-It is generally understood that Saudi Arabia sits atop 80 important reservoirs of oil of which only 11 of which are being tapped with one additional reservoir coming on stream in days. Is the purpose of holding back wider development of these reservoirs to give the world the illusion of shortage? Your comments would be instructive.
-In early 2007 with price of oil near $50 a barrel OPEC under the titular leadership of Saudi Arabia cut its daily production quota by 1.7 million barrels a day. Since that time the price of oil has escalated by some 160% to circa $135 barrel (for those keeping track, the dollar has given up some 25% during the same period). Yet you have reinstated only 800,000 barrels production of that cutback and with next month's 200,000 barrels increase bringing the total to one million barrels. Clearly the cutback has been devastating to oil consumers worldwide and yet you have refused to bring production levels to where they were before, in spite of the massive price increase that now borders on gouging, creating economic and social crisis in countries throughout the world and most especially in developing countries. What are we to think of this lack of responsibility toward your customer base?
-While traveling through your fair city I noticed the price of gas was 0.60 riyals per litre or 60.6 US cents per gallon. In that the price of crude constitutes some 60% of the price of gasoline, on the basis of 60 riyals per litre the crude cost basis is about $15.00 per barrel. Compare this with $130 plus the rest of the world is paying. Elsewhere whole industries are being driven out of business. There are strike actions in France, Spain, riots in India and far beyond. How can you reconcile these differences with any degree of presumption that you are acting in a commercially responsible manner?
-In late March of 2007 King Abdullah proclaimed that the United State's presence in Iraq was an "illegal occupation". Couched in that statement seemingly was an invitation for us to leave Iraq. Does that mean if we follow the King's advice and up and leave, Saudi Arabia's oil policies will become more pliant, more in keeping of those of a responsible supplier, aware of the impact its supply policies can have on the well being not only of the United States but economies and consumers around the world?
Mr. Bodman, this once earn your spurs.