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Saudis see no reason to raise oil production now

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JENNIFER LOVEN
May 16, 2008
— Saudi Arabian leaders made clear Friday they see no reason to increase oil production until their customers demand it, apparently rebuffing President Bush amid soaring U.S. gasoline prices.

During Bush's second personal appeal this year to King Abdullah, Saudi officials stuck to their position that they are already meeting demand, the president's national security adviser told reporters.


"What they're saying to us is ... Saudi Arabia does not have customers that are making requests for oil that they are not able to satisfy," Stephen Hadley said on a day when oil prices topped $127 a barrel, a record high.


The Saudi oil minister, Ali al-Naimi, said there was no need to increase production now. "Supply and demand are in balance today," he told a news conference. "How much does Saudi Arabia need to do to satisfy people who are questioning our oil practices and policies?"


He said the kingdom decided on May 10 to raise production by 300,000 barrels, at the request of customers, and that increase was sufficient.


The Saudi government indicated that it is willing to put on the market whatever oil is necessary to meet the demand of its customers, Hadley said. But even then, he said, Saudi leaders say increased production would not dramatically reduce pump prices in the United States.


The Saudis are investing in ways to increase oil production over time. Officials told Bush they are doing "everything they can do" for now to address a complicated market.


Hadley said the Bush administration will take the explanation back to its own experts and "see it if conforms."


The foreign minister, Prince Saud al-Faisal, said the discussion about oil was friendly. "He didn't punch any tables or shout at anybody," the minister said. The oil minister explained to Bush the kingdom's policy of responding to any production requests and "I think he was satisfied."


When Bush and Abdullah met in the kingdom in mid-January, the president also sought more Saudi output but got a chilly response to that plea. Saudi Arabia said it would increase production only when the market justified it and that production levels appeared normal.


Bush acknowledges that raising output is difficult because the demand for oil particularly from China and India is stretching supplies. Also, economists say prices are being driven up by increased demand, not slowed production.


High energy costs are a major drain on the U.S. economy, which is experiencing a slowdown that some think is already a recession. At the pump, gas prices rose to a national average of $3.78 per gallon on Friday, according to a survey of stations by AAA and the Oil Price Information Service.


Beyond oil, Iran also dominated the meeting between the president and the king. The two shared a concern over the recent in violence in Lebanon, where Hezbollah overran Beirut neighborhoods last week. The display of military power by the Iranian- and Syrian-backed Hezbollah, which the U.S. considers a terrorist organization, resulted in the worst internal fighting since the end of Lebanon's 1975-90 civil war.


Hadley said the leaders shared concerns the recent events would "embolden Iran." The U.S. and Saudi Arabia, he said, "are of one mind in condemning what Hezbollah did in bringing pressure on the duly elected government of Lebanon."


"Iran, working directly and through Syria, was very much behind what happened in Lebanon over the weekend and it is another example of Iran taking actions that are contrary to the interests of those in the Middle East who want peace, security and freedom," Hadley said.


On Thursday, the Hezbollah-led opposition and U.S.-backed government reached a deal to end the violence after Lebanon's Cabinet reversed measures aimed at reining in the militants.


Earlier, Bush and Abdullah formalized new cooperation between the kingdom and the United States on a range of topics, including the development of civilian nuclear energy in Saudi Arabia.


Bush was spending the day with Abdullah at his horse farm outside Riyadh, talking mostly out of public view over three tea services and two meals.


The White House says the president's visit is intended, in part, to celebrate 75 years of formal U.S.-Saudi relations. But the rising price of oil commanded attention.


When Bush first ran for president in 2000, he criticized the Clinton administration for high fuel prices and said the president must "jawbone" oil producing nations and persuade them to drop rates. At that time, oil was nearing $28 a barrel. The run-up of oil prices lately has been dramatic.


Bush's visit comes two days after Congress voted to temporarily halt daily shipments of 70,000 barrels of oil to the nation's emergency reserve. After Bush's talks, his administration announced in Washington that it has canceled oil shipments into the reserve beginning in July, when the current purchase contract expires. Bush had refused to stop the practice, saying the stockpile was meant for emergencies and that halting the shipments would have little or no impact on gasoline or crude oil prices.


It's a move that Democrats have sought for the past year to increase supply and apply downward pressure on prices. With an eye to the November election, the Senate sent the measure to the president Wednesday night without a single GOP objection. The White House has indicated that Bush will sign the reserve measure.


Also, as Bush prepared to leave Washington, Senate Democrats introduced a resolution that would block $1.4 billion in arms sales to Saudi Arabia unless Riyadh agrees to increase its oil production by 1 million barrels per day. The Democrats said they introduced the measure to coincide with Bush's trip to send a message to Saudi Arabia that it should pump more oil to reduce the cost of gas for Americans.


Besides wanting to discuss oil, Bush is paying his second visit to Abdullah this year on top of a stop by Vice President Dick Cheney in Saudi Arabia in March to talk about his goal of achieving an Israeli-Palestinian peace deal before he leaves office. Saudi Arabia's immense power in the region means that its backing of Palestinian President Mahmoud Abbas and any concessions he will have to make is key.



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