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Oil price swings on Saudi gesture to boost su -

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Oil price swings on Saudi gesture to boost supply

The World Today - Tuesday, 17 June , 2008 12:10:00

Reporter: Peter Ryan

EMMA ALBERICI: Oil has been on another rollercoaster ride overnight after Saudi Arabia signalled it
would boost production to its highest level in 25 years.

The price of crude surged close to almost $US140 a barrel, but pulled back amid scepticism that the
expected Saudi intervention would have any meaningful impact.

Traders doubt the action will do much to rein in speculators who've been driving the price higher
and say while the increased supply is a welcome gesture, it's not the type of oil the world needs.

More from our business editor Peter Ryan.

PETER RYAN: The world's top oil producing and consuming nations meet in Saudi Arabia this weekend
at the personal request of King Abdullah.

In the lead up to the summit, the UN's Secretary-General Ban Ki-moon has been told Saudi oil
production will increase by 200,000 barrels a day to 9.7 million barrels a day to help stabilise

But oil watchers are wondering if this is the path to a solution, or a carefully managed public
relations gesture.

CAROLA HOYAS: 200,000 barrels a day is what the Saudis told the UN Secretary-General they'll do. It
doesn't necessarily mean that's the level we'll get on Sunday at the meeting. And maybe they're
just filling out the market. They want to see how much that would impact the market, and so far the
answer is not at all.

PETER RYAN: Carola Hoyas is the chief energy correspondent at the Financial Times in London.

She says although Saudi Arabia has the greatest capacity to increase production to meet demand, the
meeting needs to deliver tangible and immediate results that push the oil price lower.

CAROLA HOYAS: I think this is a very high risk, high stakes game that the Saudi's are playing
today. So I think they are going to want to look very credible. They've invited very senior leaders
of countries of oil companies to come to Jeddah for this meeting. So if they don't follow through
on this, it'll have lasting affects.

PETER RYAN: The proposed Saudi action, and a major oil rig fire in the North Sea, pushed oil
futures close to the next psychological threshold of $US140 a barrel, a one day spike if more than

But the excitement dimmed when traders worried that Saudi Arabia influence over other oil producers
is what it once was.

And traders on the floor of the New York Mercantile Exchange, like Raymond Carbone, says the
additional 200,000 barrels a day might necessarily be useful.

RAYMOND CARBONE: This is heavy, sour, high sulfur oil. This is exactly what the market does not
need anymore of. And so, in my mind, it's here's something you really don't need and not much of it
anyway. So if we were going to be getting 200 to 500,000 barrels of light, sweet, crude oil, I
think the market will react differently.

PETER RYAN: In America, where talk of high fuel prices compete with the presidential election race,
the Saudi gesture is being viewed cautiously.

JOHN KILDUFF: They want to keep the addict hooked on the cheap drug. In that, they want us not to
have an option, not to be lured by alternative fuel.

PETER RYAN: But energy analyst John Kilduff says options are running out.

JOHN KILDUFF: We're down to our last bullets here in terms of fighting these high prices, and if
this Saudi move doesn't do anything to stem the continuous rise in crude oil prices, it's even
worrisome than if they had done nothing.

PETER RYAN: Andy Gordon of the newsletter Investors Daily Edge is also hopeful, but says the talks
will be meaningless unless demand issues are considered along with supply.

ANDY GORDON: It's not enough, but it's moving in the right direction. Positive news is still
positive news, but it doesn't change the long-term fundamentals, which is that there is a shortage,
and that to be demand-supply equation is getting worse, not better.

PETER RYAN: The Saudi move to increase supply is a single move from one powerful nation.

But Carola Hoyas of the Financial Times says the attitude of other OPEC countries will also be
critical at the Jeddah meeting.

CAROLA HOYAS: They're not terribly unhappy about it at the moment, though generally they don't like
it when Saudi Arabia acts uni-laterally, but they don't have much to say. Many of the other
oil-producing countries have very little ability to increase capacity at this point. Saudis really
are in the driving seat at the moment.

EMMA ALBERICI: Carola Hoyas of the Financial Times ending that report from business editor Peter