WASHINGTON (Reuters) - President George W. Bush walked away from a meeting with Saudi King Abdullah on Friday with a prize he has been seeking for months: a commitment from the world’s big oil exporter to boost output.
But the news -- which came the same day that U.S. crude oil futures hit a new record of $127.82 a barrel -- speaks less to Bush’s success at “jawboning” the de facto OPEC leader on oil prices and more to the kingdom’s worry that high oil prices will dent demand for their own supplies, analysts said.
Saudi Arabia move to boost output by a modest 300,000 barrels per day, or 3.3 percent, in an attempt to head off an oil price shockwave that is disrupting the global economy, experts said.
“It’s not that Bush went to Saudi Arabia and they gave him something,” said Amy Myers Jaffe, an energy researcher at the Baker Institute at Rice University in Houston.
“It is in the Saudis’ interest to respond to the risks that they see both in the oil market and the financial market,” Jaffe said.
The Saudis are seeking to salvage the value of the U.S. dollar, which comprises most of the kingdom’s foreign currency holdings, Jaffe added.
The move, announced by Saudi Oil Minister Ali al-Naimi after Bush met with Abdullah in Riyadh, was “a bit of capitulation for the Saudis,” said Frank Verrastro, an energy expert at the Center for Strategic and International Studies.
However, Verrastro agreed that the move was meant to safeguard global economies and prevent a downturn in petroleum demand, not to placate the world’s largest energy user.
“The Saudis have been concerned with higher prices leading to demand destruction,” Verrastro said. “They have consistently said they would put more oil on the market if there were more buyers. “
Oil market observers noted the timing of the Saudi move, which came the same day that the U.S. Energy Department scrubbed plans to send 13 million barrels of crude oil into the U.S. emergency oil stockpile this year.
The department’s decision came after Congress this week approved legislation ordering the Bush administration to stop putting oil into the emergency stockpile until crude prices fall below $75 per barrel, far lower than current levels.
“There are a lot of interesting coincidences,” said Adam Sieminski, chief energy economist at Deutsche Bank. “The Saudis and the White House are thinking that a step back from the brink might be wise.”
Energy economists can debate whether the 300,000 bpd Saudi output hike will impact prices but “you’ve got to start somewhere,” Sieminski said.
Together with the halt in U.S. oil reserve shipments, which will free up about 75,000 bpd of extra crude oil, the Saudi hike is “big enough to have an impact but not so big as to send the market into a tailspin,” he said.
Editing by Christian Wiessner
Our Standards: The Thomson Reuters Trust Principles.