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Saudi vows to keep oil flowing

On London's IPEX, Brent crude traded around $37 last week.
(millions of barrels per day)
Demand, May 2004: 80.6
Supply, May 2004: 81.5
Growth over 2003: 2.0
Source: International Energy Agency, May 2004
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Oil and Gas
Organization of Petroleum Exporting Countries (OPEC)
Saudi Arabia

KHOBAR, Saudi Arabia (Reuters) -- Oil superpower Saudi Arabia has vowed to keep its crude supplies flowing smoothly to world markets after a deadly militant attack on the eastern oil city of Khobar.

But pledges of secure supplies from state-run oil giant Saudi Aramco might not go far enough to soothe jittery world markets, where prices again were threatening to pierce the $40 a barrel mark.

International markets have been on edge over the possibility of a militant strike in Saudi Arabia, the world's top oil exporter now pumping more than 9 million barrels daily in a bid to cool scorching prices.

A purported statement from al Qaeda boasting it had hit at "American companies" which "specialised in oil" and claiming the attack on Khobar that killed 17 foreigners will heighten dealers' concern about supply security in the Middle East.

"No Saudi Aramco facilities or personnel were affected by the incidents in al-Khobar on May 29, 2004, and normal operations continue at all of the company's installations," state-run Saudi Aramco said in a statement received by Reuters.

"...the company is committed to carrying out the Saudi Arabian government's policy of providing a reliable supply of oil to meet world energy demand."

Suspected al Qaeda militants killed some hostages after Saudi commandos stormed a building on Sunday to rescue some 50 foreigners in a Khobar housing compound. Hostage-taking is a new twist in the wave of militant violence sweeping the kingdom.

"The attack has some shock value for oil prices, but things may calm down again," said Peter Gignoux, senior oil adviser at New York-based GDP Associates.

"This was a terrible act of terrorism, but it hasn't had any impact on Saudi oil production or exports."

Saudi oil officials met senior Western executives at Aramco headquarters in nearby Dhahran to ease concerns over security after the Khobar attacks, a Western industry source said.

The state oil company's "top priority is to ensure the security of its employees, dependants, facilities and communities, by working closely with Saudi government authorities," the Aramco statement said.

The kingdom's well protected energy infrastructure has yet to be struck by militants, but some dealers feared emboldened fighters might shift from soft targets and attack production and export facilities.

Khobar has no production, export or refining facilities, but Western oil firms have offices and housing in the city 400 km (240 miles) northeast of the capital Riyadh.

Despite the fresh weekend violence, Western oil majors said they were unlikely to pull out of the oil-rich kingdom.

Executives from Royal Dutch/Shell, Total and LUKOIL had lived at the Oasis compound, scene of the hostage ordeal. The three firms are working on projects to find and pump natural gas in the kingdom.

"I don't expect a mass exodus, but families will consider leaving," said a Western oil executive.

The Saturday attack in Khobar comes just days ahead of a meeting of the Organisation of Petroleum Exporting Countries in Beirut where the cartel is due to consider a big increase in output limits. Saudi Arabia, the only OPEC member with any significant immediate spare capacity, has made clear it will pump real extra volumes of some 700,000 bpd, irrespective of quotas

The United States sees signs of extra oil supplies from Mexico, Nigeria and Russia as well as Saudi Arabia, U.S. Energy Secretary Spencer Abraham says.

"We also have positive signs from Mexico, Nigeria and Russia that production will rise to meet the global demand," Abraham told reporters in Moscow Thursday.

"My impression is that there will be more such indications coming," he added, without elaborating.

Non-OPEC Mexico this week proposed to pump an extra 70,000 barrels per day (bpd) in the second half of this year, raising output to a targeted 1.95 million bpd.

"We want to reach the figure established by Congress, which is 1.95 million barrels per day, around the second half of the year," Energy Minister Felipe Calderon told reporters Wednesday on the sidelines of a Mexican energy forum hosted by the American Chamber of Commerce in Mexico City.

Calderon said that Mexican output could not be raised straight away. "It's not something that can be done overnight," he said.

Saudi Arabia said at the weekend it would lift production by 10 percent to 9.1 million bpd in June, and was ready to pump its maximum 10.5 million bpd if demand warranted.

Abraham said he expected the Saudi pledge to raise output to bring down oil prices.

"We have already released an evaluation of their initial indication that production will rise to nine million barrels a day. This would have a significant effect on oil prices," Abraham said.

Most other members of the Organization of the Petroleum Exporting Countries are already pumping at full throttle, while non-cartel producers typically do not restrain output, meaning little extra oil is available in the short-term.

OPEC member Nigeria said Monday it could tap another 300,000 bpd capacity by year's end, but has been producing at full capacity 2.4-2.5 million bpd for most of this year, industry sources say.

Non-OPEC Russia, the world's second largest exporter, has raised oil production sharply in recent years but is running into export constraints due to pipeline bottlenecks, the head of state pipeline company Transneft Semyon Vainshtok said recently.

President Vladimir Putin urged ministers Wednesday to approve new crude export routes faster, but most new projects will still be years in the making.

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