FUEL Saudis want to increase oil production

Gas prices will stay high because of limited refining capacity, analysts say.
KNIGHT RIDDER NEWSPAPERS
Helped by assurances that Saudi Arabia would increase production, oil markets reversed a recent uptick Monday and pulled back from the $40-a-barrel level.
The June contract for crude oil declined by almost $1 a barrel, to close at $38.93 in New York, after Saudi oil minister Ali Naimi said crude prices had risen far enough and he would urge OPEC to increase production.
Oil prices, which had hovered in the $33-$35 range for most of this year, traded above $40 last week after an attack on an energy engineering office in Saudi Arabia a week ago.
Prince Bandar bin Sultan, Saudi Arabia's ambassador to the United States, said the oil state now wants OPEC to increase its production ceiling by at least 1.4 million barrels per day.
Gas pumps
Analysts said the decision, which was unexpected, should lead to lower oil prices but may not bring relief at the gas pump any time soon.
"The Saudis have the ability to make a difference in production," said Houston energy consultant Henry Groppe, who said he expects crude oil prices to drop back to the $35-$36 level.
Distributors and refiners say supplies of gasoline have been tight because of limited refining capacity in the United States, and that is unlikely to change.
The national average is $1.89 a gallon for self-serve unleaded gasoline.
"We've had tight supplies at the terminals for a couple of weeks," said Royce Kirby, president of Advance Petroleum, a Fort Worth, Texas, gasoline distributor.
Kirby said demand normally ramps up in May on the eve of the summer driving season and this year is no different, high prices and all.
"People will buy gas at $2 per gallon; it makes no difference," he said.
Oil reserve
Democrats, led by presidential candidate Sen. John Kerry, have argued that crude oil be taken from the Strategic Petroleum Reserve to ease prices.
The Bush administration has resisted, saying the reserve is not to be used to manipulate prices.
Saudi Arabia is the largest producer within OPEC, which supplies about one-third of the world's oil. The kingdom is considered the de facto leader of the cartel.
Before Monday's announcement by Saudi Arabia, OPEC had resolved to impose a 1 million-barrel cut in daily production. The current OPEC quota is 23.5 million barrels per day, about half coming from Saudi Arabia.
Arab oil producers have said during the past six months that they needed higher prices because of the 13 percent decline in the value of the U.S. dollar since mid-2003. But the dollar has rallied in recent weeks, particularly against the euro.
Bush's re-election
The behavior of Saudi Arabia has been watched closely since journalist Bob Woodward, in his recent book about the Iraq war, said Saudi Arabia and the White House had agreed to bring oil prices down in order to help President Bush win re-election. Both the administration and Saudi Arabia have denied the suggestion.
Analyst Jan Stuart of FIMAT USA, a New York brokerage, told Bloomberg News that the Saudi decision to boost production was "very curious."
"It's diametrically opposite to everything Naimi has been saying" about supplies being adequate to meet demand, he said. "It's the first noise from anyone in OPEC about raising output."
The Saudi position Monday drew support from Kuwait, whose oil minister Sheik Ahmed Fahd Al Ahmed Al Sabah, said the previously agreed-upon production cut "should not be implemented."
The matter will be discussed by OPEC members May 22-24 at the International Energy Forum in Amsterdam, the Netherlands.