RIYADH, Saudi Arabia – Regular gasoline goes for less than 50 cents a gallon here in the capital of the world’s largest producer of oil, pumping out nine million barrels a day.

But, after a visit with the Saudi monarch here, President George W. Bush has found little hope of bringing any significant relief back home, where Americans are paying close to $4 a gallon.

The Saudis have agreed to a relatively modest boost in oil production, announced in the midst of meetings Friday with King Abdullah over tea, lunch and dinner and an overnight stay for Bush at the palatial horse farm where the Saudi ruler keeps 150 Arabian stallions in air-conditioned stalls.

But, for the second time in five months, the Saudis have rebuffed the Bush administration’s request for significantly stepped-up oil production to ease rising oil prices. The Saudi oil minister said the Saudis already had marginally boosted production by about 300,000 barrels a day, as of May 10, to meet world demand, as they see it. This will boost output to 9.45 million barrels a day in June.

The Saudis have made clear they see no great world demand for increased production, Stephen Hadley, the president’s national security adviser, said after private meetings between Bush and Abdullah at the king’s ranch. And they are not bowing for one customer, albeit the world’s biggest consumer.

“What they’re saying to us is … Saudi Arabia at the present time does not have customers that are making requests for oil that they are not able to satisfy,” Hadley said. And despite the production boost announced “in order to meet the demand of their customers, in their judgment … even increased production under this policy would not result in dramatic … reduction of gas prices in the United States.”

The talks were conducted in private, but both sides spoke about them afterward. Prince Saud al-Faisal, the Saudi foreign minister, was asked how forcefully Bush had made the case for boosting production.

“The discussion was carried out in a friendly fashion,” Saud told reporters. “I don’t know what you mean by forcefully – he didn’t punch any table or shout at anybody. … The president showed great concern for the impact on the American economy … and we, of course, sympathized with that completely. But on our part, we are doing everything we can to help the international economy by producing as much as is needed.”

During the talks, the discrepancy between gas prices in the land of plenty and in the land of the “oil-addicted,” as Bush has called the U.S., could hardly be more dramatic: Gas fetches about 46 cents a gallon on the furnace-hot streets of Riyadh, and a gallon of regular in the U.S. has reached an average of $3.73.

The Bush administration repeatedly has tried to convince the Saudis that the impact of soaring gas prices on the American economy is bad, in the long run, for the profits of the oil producers. They “need to take into account the economic health of their customers who pay these prices,” Hadley had said before this visit.

But the president’s appeals for stepped-up production – an appeal that Bush personally made to the king in January, when the price of oil still hovered below $100 a barrel – conflicts with a firm Saudi practice of matching oil output with demand and maintaining stability in the world’s oil market, while heeding to production quotas set by the Organization of Petroleum Exporting Countries.

While stepped-up production could alleviate pressure on rising prices, analysts say, the Saudis, who produce one-tenth of the world’s oil, have no incentive to assist the United States alone.

“The reality is, the market isn’t being driven by us,” said Anthony Cordesman, a senior fellow at the Center for Strategic and International Studies. “It’s being driven by China, by India, by rising Asian demand, which guarantees a market into the long term.”


Oil is the mainstay of the Saudi economy. It was first discovered here in the 1930s, but large-scale production started after World War II. Now, more than $200 billion in oil products a year is exported, 90 percent of the nation’s economy.

The opulence of the oil-rich Saudi royalty is seen at the lavish horse farm of the king, Al Jamadriyah Ranch, sitting on “thousands of hectares” outside Riyadh.

The home, constructed as a tent with a permanent roof and poles made of ebony, ivory and precious stones, is divided into two chambers – one a throne room with space for 200, the other a dining room with capacity for 300. Like many Americans, the king has a television at his dinner table, albeit an 80-inch flat screen.

The Bush administration is honoring the 75th year of formal relations with the Saudis – cemented with an agreement Friday to cooperate on security, nuclear energy and nonproliferation of nuclear weaponry – but the Bush family and the House of Saud also go way back.

The 84-year-old Saudi ruler, then crown prince, visited President George H.W. Bush in 1987. The crown prince visited the current president in 2002 and again in 2005, at the president’s Texas ranch.

High oil prices in the 1970s made the Saudi economy the fastest growing, but also promoted more production around the world, leading to a glut in the “80s. The Saudis, who had been producing nearly 10 million barrels a day in 1980 and “81, cut production to about 2 million a day in 1985. And the Saudis submitted to OPEC’s quotas in an effort to maintain stability in the world market.

In recent years, the Saudis have pledged to raise their full capacity for drilling from 11 million barrels a day to 12.5 million by the end of 2009. But in the meantime, they are actually producing just 9 million barrels a day, about 10 percent of the world’s supply.

Now, with a modest boost, they say they will increase to 9.45 million a day in June.

“Every month, we receive (orders) from our customers worldwide,” said Ali I. al-Naimi, Saudi oil minister. “On May 10th we increased our response to our customers by 300,000 barrels, because they asked for it. … Most of the 300,000 came from the U.S…. How much more can we do?”

Still, the difference between what the Saudis pump and their capacity to produce – about 2 million barrels a day – represents nearly all of OPEC’s potential surplus.

And that 12.5-million barrel-a-day capacity should suffice well into the near future, the Saudis say.

“Saudi Arabia has no policy not to expand, but we are very pragmatic in this area,” al-Naimi said. “We need to make sure that the demand is there … We have always maintained about 2 million barrels per day of extra capacity and we intend to do so in the near future.”

The cartel of 13 oil-producing nations, which together account for about 40 percent of world output, has resisted pressure from the U.S. and other leading consumers to increase production to stem rising prices. Oil prices reached a new record of $127 per barrel this week.

The Bush administration also suggests that the Saudis have only so much capacity for drilling and that the U.S. must step up its own production. Bush has pressed for oil drilling in the Arctic National Wildlife Refuge, with staunch opposition from environmentalists and Democratic leaders in Congress.

Cordesman, a student of Middle East military strategy and oil markets, believes that even an increase in production and slightly lower prices will not solve the problem in the long run.

“Even if you get a cosmetic agreement, and oil goes down to, say, even $100 a barrel, it doesn’t solve the economic pressures involved,” Cordesman said. “So the best cosmetic outcome isn’t going to have any meaningful impact on the global economy or global energy supply. It just can’t work like that.”

—

(c) 2008, Chicago Tribune.

Visit the Chicago Tribune on the Internet at http://www.chicagotribune.com/

Distributed by McClatchy-Tribune Information Services.

AP-NY-05-16-08 1828EDT