The chief executive of Saudi Aramco, the world's biggest state-owned oil company, said Wednesday the recent surge in oil prices was driven by speculation rather than demand. “It's obvious speculation played a lot” in powering oil prices to the record $147.27 a barrel they hit in July, said Saudi Aramco Chief Executive Officer Abdallah Jum'ah. “There was no shortage - prices were not set by supply and demand,” Jum'ah told an energy forum in New Delhi. Jum'ah, in his last speech abroad before he retires next month after 40 years with the company, warned that continued low crude oil prices could curb vital investment required to counter falling production in aging oil fields. Despite talk of use of alternative energy sources, “oil is here to stay” and investors need to “plan with confidence,” said Jum'ah, who has served 14 years as Aramco's chief executive. “Companies need to have enough money to continue to build additional facilities and if there is always uncertainty people will not invest,” said Jum'ah. Crude prices have retreated 65 percent since hitting their July peak. The International Energy Agency said last month that the world will need to invest more than $26 trillion by 2030 to ensure adequate energy supply. Jum'ah said that even with the fall in prices, global demand would continue to rise due to energy demand from developing countries. By 2030, the world will consume 118 million barrels a day, up from 85 million currently, as the economies of China and India power ahead, according to industry data. “There is a need for substantial investment,” Jum'ah said. In a bid to conserve cash as oil prices plummet, there are already moves by oil companies to put on hold billions of dollars of investment in new oil field and refining projects. Europe's biggest oil company, Royal Dutch Shell PLC, announced in October it was delaying a planned investment in Canada's oil sands, where extracting the heavy crude from the sand and clay is technologically difficult and costly. Saudi Arabia, which has the world's largest proved reserves of oil, now has the capacity to produce 11 billion barrels a day and will have the capacity to produce 12 billion next year “on a sustained basis,” Jum'ah said. The country, which has been carrying out major energy projects to boost production and refining capacity, traditionally “invests in a cushion so that the oil industry doesn't see hiccups,” he said. Oil prices rose sharply Wednesday as a large interest rate cut in China and news of a possible Russian output cut appeared to counter another round of dour economic news and larger-than-expected crude stockpiles in the US. Trading followed this week's established pattern of volatility in the oil markets. In Nymex trading, light, sweet crude for January delivery jumped more than 7 percent, or $3.67 to settle at $54.44 a barrel. Oil opened the week with a 9 percent swing upward Monday after the US said it would bail out Citigroup, followed by a nearly 7 percent decline the following day on a raft of ominous ecnomic data. In London, January Brent crude rose $1.72 cents to $52.07 on the ICE Futures exchange. “This could help speed up the Chinese economy's recovery from the current slowdown and therefore encouraging for oil demand growth in the future,” said a report from Sucden Research in London. Slowing global economic activity has spurred corporate losses and job cuts, undermining demand for fuels to power industry and cars. “Commodity prices are really captive to the broader economic and financial issues,” said Gerard Burg, minerals and energy economist with National Australia Bank in Melbourne. “It's possible we've seen a bottom, but anything over $60 is probably too high over the next few weeks.” Last week, prices fell as low as $48.25 a barrel in intraday trading. But prices got a lift by expectations of a production cut by the Organization of Petroleum Exporting Countries, which accounts for 40 percent of global supply. The group will hold and informal meeting Saturday in Cairo and an official meeting Dec. 17 in Algeria. Venezuelan Oil Minister Rafael Ramirez said Sunday that OPEC should cut oil production by 1 million barrels per day at the Cairo meeting. OPEC President Chakib Khelil said a cut of 1 million barrels would not be enough to support oil prices. But Khelil has said in the past that OPEC needs more time to evaluate the effect of previous production cuts. The group cut output by 1.5 million barrels a day last month. Russia, one the world's largest crude producers, may join OPEC in output cuts, Energy Minister Sergei Shmatko said in New Delhi on Tuesday, Press Trust of India news agency reported. “Very few members of OPEC are content with prices this low and they really want to firm up the market,” Burg said. “We haven't heard OPEC say they're happy with prices at $50. Russia could also move in line with OPEC.” JBC Energy in Vienna noted that it's been nearly seven years since non-OPEC oil exporters Russia, Norway and Mexico last made coordinated moves to cut output. In a report released a day early because of the Thanksgiving holiday, the EIA said natural gas storage levels fell more than expected last week and are 3.1 percent below the year-ago average.In its weekly report, the government said natural gas inventories held in underground storage in the lower 48 states dropped by 66 billion cubic feet to about 3.42 trillion cubic feet for the week ending Nov. 21. A 1mbd output cut seen OPEC nations, the producers of more than 40 percent of the world's oil, may cut output for the second time in as many months as recessions in the US and Europe drag oil below $50 a barrel. Twelve of the people surveyed by Bloomberg predicted the reduction will be at least 1 million barrels a day, more than is pumped by Qatar. OPEC ministers meet Nov. 29 in Cairo and again in Algeria on Dec. 17. “The pressure is on,” said Harry Tchilinguirian, senior oil analyst at BNP Paribas SA in London. “To get the market's attention they will need to cut at least 1 million barrels a day, yet previously announced cuts are still ongoing,” raising concern further reductions may not be made, he said.
