Saudis Try to Cool Off Oil

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This executive said it was good that energy leaders were talking about these issues now, rather than five years from now when the problems will get more serious.

Pointing the Finger

What could still set markets on edge are the sharp differences, made all the more clear at the meeting, between the top producers such as the Saudis, and the West, particularly the U.S. Essentially, the Saudis and OPEC profess to believe that the markets are currently well-supplied. They blame the doubling of prices over the last year on a number of nonfundamental factors, including the fall of the dollar, growing financial investment in commodities, the U.S. subprime mortgage crisis, and Israeli threats against Iran. In his speech, King Abdullah even chided "the selfishness" of speculators.

On the other hand, U.S. Energy Secretary Samuel Bodman put the blame for high prices almost entirely on a lack of new supply from OPEC and other suppliers. He rejected the notion that the money pouring into the commodities market lies at the root of the recent huge price runup. "Market fundamentals show us that production has not kept pace with growing demand for oil, resulting in increasing—and increasingly volatile—prices," Bodman said. He added, "Capital is following the oil market upward—not leading the movement." U.S. officials say 3 million to 4 million barrels of spare capacity are needed to calm prices. There are only an estimated 2 million barrels of spare capacity in the world, most of it in Saudi Arabia.

"We have been 30 years digging ourselves into this hole," he continued. "It is not something that is going to be relieved in the short term."

OPEC President Chekib Khelil, who said he was speaking in his role as Algerian Oil Minister, was more blunt. It is "easier to blame OPEC than to convince the people in America they need to do more on conservation," he said. Noting that European gasoline prices are double those of the U.S., he asked how conservation can be achieved in the U.S. at just $4 per gallon.

Alkadiri, the PFC Energy analyst, says the Bodman-led U.S. delegation had played "an almost disruptive role." Khelil said he didn't see any reason to add new oil to the markets now. And though Khelil said he was not speaking for OPEC, his remarks could be interpreted as a sign that OPEC disagrees with the Saudis. Edgy markets could take such signs of differences poorly. The danger is they "will confirm the bullish suspicions the markets already hold," Alkadiri says.

Reed is London bureau chief for BusinessWeek.