Saudi Oil Minister Plays Down Production Expansion Talk

Oil barrels
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Saudi Arabia Oil Minister Ali Al-Naimi Tuesday emphasized the Saudis currently have no plans to expand production, while he also framed the U.S. energy boom as a companion, not competitor to his country's production.

In a carefully worded speech highlighting the importance of cooperation with the United States, Naimi commented directly on the expansion in shale oil and gas production in North America and welcomed the new supplies onto the global market.

The Saudis also seemed be backtracking on their position on future Saudi production, said ClearView Energy analyst Kevin Book, who attended Naimi's speech at the Center for Strategic and International Studies in Washington, D.C. The Saudi oil minister indicated his country has no immediate need or intention to expand production.

A few days ago Prince Turki al-Faisal said that Saudi Arabia has plans to expand production capacity of crude oil to 15 million barrels per day by 2020. In response, Naimi told the audience on Tuesday, "I don't know what he meant by that. Maybe he meant we have the capability."

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The oil minister also said he doesn't agree with the view that shale developments in North America will lead to U.S. energy independence. "The U.S. is and will remain a major energy consumer," which include supplies from the Middle East.

"I hope these new resources will add depth and increased stability to world oil markets," he said. According to Naimi, Middle East oil exports to America—especially from Saudi Arabia—were higher in 2012 than any time since the U.S. tight oil production began in 2009.

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The U.S. imported over one million barrels a day of crude oil from Saudi Arabia in March, according to the latest statistics from the U.S. Energy Information Administration. Canadian oil exports topped 2.8 million barrels a day during that time.

"I agree with the view that U.S. energy independence is out of date," said NYMEX trader Ray Carbone after hearing Naimi's comments. "We'll always need Saudi oil in the market place, or we'll have a price spike. It's all interconnected."

"We don't want to be free from the option of using imported oil," agreed Book. "When you have the best refining fleet, which the U.S. has, you want to have the best types of oil possible."

Saudi Arabia's ability to be a swing producer with its spare capacity is an attribute needed to keep oil prices in check, traders and analysts say. The oil rich nation is the second largest exporter of oil to the United States, behind Canada.

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Naimi reiterated Saudi Arabia's commitment to a swing producer role, saying "only Saudi Arabia has this capacity. We have never failed in our commitment to global energy market stability."

Saudi Arabia cut back oil production by 786,000 barrels per day in March versus year-ago levels. "This reinforces our view that this role continues to include price stabilization efforts on the downside," Book said.

As the largest OPEC nation continues to focus diversifying new sources of supply (including non-oil liquids), "we don't really see a need to build capacity beyond what we have today," Naimi said, adding that there is no call to go past oil production of 11.5 million barrels per day by 2030 or 2040.

Book said the Saudis could help contain oil prices.

"Prices may not fall too far now because the Saudis are not about to expand the visible universe of supply," Book said. Naimi suggested Saudi Arabia is now more focused on technology, diversification and efficiency, rather than exploration and new field expansion. If these diversification initiatives are successful, that "may to mitigate (or obviate) the need for significant capacity expansion," Book said, offering some downside support for crude oil prices.

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—By CNBC's Sharon Epperson; Follow her on Twitter: @sharon_epperson