Saudi officials confirmed today that they will increase the country's oil output by 200,000 barrels a day in the month of July, a move that some hoped would help ease prices around the world.
But whatever positive effect the Saudis' production hike might have had on global oil markets was probably wiped out this week by rebel attacks in Nigeria that likely will take more than 300,000 barrels a day off the market, experts at the Jeddah Energy Meeting said today.
Saudi King Abdullah said the country was ready to increase production even further, if customer demand warrants it, but he said -- speaking for most of the oil-producing countries at the meeting -- that supply was not the problem.
Saudi Arabia also announced it is building a new refinery with tthe assistance of the French energy firm Total. Refinery capacity has been a serious bottleneck, limiting supply to the market.
Despite these announcements, Abdullah said he does not believe that problems with oil supply is what is driving up global prices. Instead, he blamed the "selfish interests" of financial market speculators.
"There are several factors behind the unjustified, swift rise in oil prices, and they are: speculators who play the market out of selfish interests, increased consumption by several developing economies, and additional taxes on oil in several consuming countries," the king said.
However, Abdullah said that Saudi Arabia, the world's largest producer of oil, had always met its customers' demands and would continue to do so.
"We increased because they (our customers) asked for it," a source in the Saudi oil industry told ABC News. But he echoed the king's assertion that supply is not the problem: "Right now, the majority of people think the price of oil is very high. There is no justification for this price."
A draft of the final statement expected to come out of the meeting declares that there is an urgent need to "take the necessary measures to guarantee the stability and permanence of the energy system and raise refining capacities" and "the strengthening of transparency of financial markets having regard to their impact on world petroleum markets," according to a report in Algeria's official APS news agency.
By taking steps to "reinforce transparency," the goal is to gain a more clear understanding "of the impact of international financial markets on prices and their volatilities," the statement will say.
The statement will declare "the need to take steps to collect more information about the actions of investment funds," as well as about speculators and "unreal judgments about the real price of a barrel of oil and the future of the crude market."
U.S. officials have disagreed with the Saudis over the reasons behind the sharp rise in gas prices, saying that it is because of growing demand, particularly in the developing world.
"The world faces an extraordinary time that, in my view, demands responsible action from both consuming and producing nations," U.S. Energy Secretary Samuel Bodman said. "In the absence of any additional crude supply, for every 1 percent of crude demand, we will expect a 20 percent increase in price in order to balance the market."
Bodman was adamant that the current high prices have to do with market fundamentals -- supply and demand. He noted that supply has been stagnating every year since 2003, while global demand has surged.
Oil market analysts generally blame a number of factors for the high oil prices:
A perception that present supply isn't there, and in the longer term, we've hit a period of peak oil -- growing demand cannot be met, especially by Saudi Arabia, the "Central Bank of Oil."
A weak dollar -- since barrels are priced in dollars, any drop in value pushes up the number. Plus, money has moved into the oil markets as a hedge against the weakness of the U.S. currency.
Political instability, from talk of a war on Iran to actual disruptions, especially the recent rebel attacks in Nigeria, concentrated on the oil-rich Niger Delta.
Tough talk from the Bush administration about potentially attacking Iran instantly drives prices up.
The weak performance of the U.S. economy -- lack of confidence in the American economy accelerates the dropping dollar, which again, raises prices per barrel and puts upward pressure on prices.
The rise in global demand, clearly driven by emerging markets (i.e., the "Chindia" factor -- booming economic growth in China and India).
Saudi Arabia called the meeting of producer and consumer nations, as well as top executives of the world's largest oil companies, after oil prices jumped nearly $11 in a single day on June 6. The price surge was blamed on a combination of weak U.S. employment figures and Israeli Deputy Prime Minister Shaul Mofaz's comments that a military strike on Iran was "inevitable."
As shocking as that one-day hike might have been, the fact is that it is just part of a trend that has seen oil prices double in the past year. Prices closed at nearly $135 a barrel on Friday. The effect of this sharp increase on a world that runs on oil has been dramatic.
Inflation rates have risen around the world, sparking protests from Asia to Western Europe, and forcing the world's major central banks to consider raising interest rates in an effort to slow the rise of consumer prices.
Turning out for the meeting were officials from OPEC, the main body representing oil producers, and from the International Energy Agency, the main body representing consumers; representatives of the Internatonal Energy Forum, a Saudi-based organization that meets every two years to bring consumers and producers together; and representatives from 36 countries, 22 oil companies and seven international organizations.
"I really believe strongly that there is a political will of oil producers and consumers to lower the price and stabilize it; otherwise, they would not have come," the Saudi oil source told ABC news.
Though the meeting today raised hopes that something substantial would come out of it that would ease prices, Libyan oil minister Shokri Ghanem said that was unlikely.
"You can't get any decision on important matters in the energy market in a meeting of three hours," Ghanem said.
He echoed the belief of other oil-producing nations that financial speculation, not supply problems, are raising prices -- and went even further, claiming markets are over-supplied.
"There's oversupply in the market," he said. "We believe the prices are high, but it's not because of supply and demand."