Saudi Arabia’s powerful oil minister, Ali Naimi, made a rare intervention into overheating oil markets on Tuesday, declaring that high oil prices were “unjustified” and vowing that the kingdom would boost its output by as much as 25 percent if necessary.
As the West’s nuclear stand-off with Iran escalates, oil priceshave rallied this month to a post-2008 peak of $128 a barrel with markets bracing for European Union sanctions on Iranian crude that could knock out a chunk of global supply.
Speaking to reporters in the Qatari capital Doha, Mr. Naimi said he wanted to “dispel this pessimism in the market” and the widespread fear that the world could see a repeat of 2008’s oil price increase which was a harbinger of the global recession .
“I think high prices are unjustified today [on] a supply-demand basis,” he said. “We really don’t understand why the prices are behaving the way they are.”
Supply was “much more firm today than in 2008” when crude rose to $147 a barrel, he said, with global supply now exceeding demand by 1 million to 2 million barrels a day.
Saudi Arabia had 2.5 million barrels per day of additional production capacity, which it could bring online if necessary, he said. The kingdom is likely to be producing about 9.9 million barrels per day of oil in April and exporting roughly 7.5 to 8 million barrels per day of that, he said.
Asked if it could ease prices by exporting more oil, he said customers were not asking for additional crude.
“We are ready and willing to put more oil on the market, but you need a buyer,” he said.
Crude stocks in industrialized countries were growing, and were at 58.5 days of forward cover in February, compared with 57 days in January, and were expected to rise to 60 days in April, he said.
Saudi inventories — both domestic and international — were full, he said, while countries such as Iraq and Libya were ramping up their output.
The intervention helped push down benchmark Brent crude, which fell nearly $2 to trade at $124 a barrel in response to Riyadh’s attempts to cool market sentiment.
But the relatively modest move in the oil prices was a sign of some skepticism in the market.
“I don’t think it’s much of change for the market,” said Mike Wittner, head of oil research at Société Générale in New York. “The problem is the more they produce the less spare capacity they have. If they want to try to bring down prices not only do they have to keep on producing at very high levels they need to show the world that they are bringing on extra spare capacity.”
The soaring oil prices in recent months have brought new fears that high oil prices could endanger the global economic recovery, with countries in Europe and Asia expressing mounting concern.
Christine Lagarde, managing director of the International Monetary Fund , said on Tuesday that rising energy prices had now overtaken Europe’s sovereign debt crisis as the biggest worry for the global economy. Speaking in New Delhi, she said that while the world financial system had strengthened over the past three months, volatile oil prices would have “serious consequences.”
Many oil market watchers believe that if Saudi Arabia’s actions prove unsuccessful in cooling the market, the U.S. could attempt to bring down prices by releasing strategic oil reserves. US officials have repeatedly said they are considering such a measure.
Up until now, Saudi Arabia has kept silent on the price rally, although it is pumping oil at 30-year highs. But a statement issued by the Saudi cabinet on Monday could signal a more active policy. The cabinet said that it had noted the risk high oil prices posed to economic growth and the kingdom would work individually and with others if necessary to “return oil prices [to] fair levels.”
When asked, however, Mr. Naimi declined to specify what specific measures Saudi Arabia could take to moderate prices.
The minister, who was in Doha for a meeting of the Gulf Co-operation Council, acknowledged that he had been approached by a number of ministers from European and developing countries complaining about the effect of high oil prices on their economies.
The weak global economy was tempering demand for oil, he said. Europe’s economy was “iffy” and growth was moderating in Asia. “I don’t think an economy that’s sick today is all of a sudden in the third and fourth quarter going to turn around,” he said.
Additional reporting by Jack Farchy and Emiko Terazono in London and James Lamont in New Delhi