Crude Oil Falls as Naimi Says Record Prices Are `Unjustified'

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June 13 (Bloomberg) -- Crude oil fell as Saudi Arabian Oil Minister Ali al-Naimi said record prices are ``unjustified'' and the state oil companysignaled it may soon start pumping from a new field.
The June 22 ``meeting in Jeddah will discuss the price rise, whichare unjustified by fundamentals, and suggest appropriatesolutions,'' al-Naimi said in a statement today. The kingdom willstart pumping oil from its new 500,000 barrel-a-day Khursaniyah field within the next month, a board member of Saudi Aramco said.
``The Saudis are trying to get some of the heat out of the marketand off of them at the same time,'' said Antoine Halff , head of energy research at Newedge USA LLC in New York. ``Themeeting is an attempt to get beyond the blame game and findsolutions to the problem of high prices.''
Crude oil for July delivery fell $2.45, or 1.8 percent, to $134.29a barrel at 10:59 a.m. on the New York Mercantile Exchange. Futuresreached a record $139.12 a barrel on June 6. Prices are down 3.1percent this week.
``This meeting is expected, God willing, to produce positiveresults that will contribute to stabilizing the international oilmarket,'' al-Naimi said.
Saudi Arabia invited nations including the U.S., Russia, Norway,U.K., China, Germany, India and Japan to the meeting, al- Naimisaid. The kingdom is the world's largest oil exporter and the mostinfluential member of the Organization of Petroleum ExportingCountries.
OPEC Gridlock
``The meeting underscores the central position the Saudis hold,''Halff said. ``It's clear that OPEC is somewhat paralyzed and toodivided to take action. The meeting is a way to bypass OPEC and endthe gridlock.''
Members of OPEC, who pump more than 40 percent of the world's oil,have kept production targets unchanged at the group's past threemeetings, on Dec. 5, Feb. 1 and March 5.
``There is a need for an increase in oil production, but pricegains are outstripping the growth in demand,'' Russia's FinanceMinister Alexei Kudrin said in Osaka, where he is attending a meeting of Group of Eightfinance ministers.
``The position that more development, more investment and anincrease in supply are needed is becoming universal and issomething we support, said Kurdin.''
The country is likely to propose a ``sizeable'' increase in oilproduction at the meeting, the Middle East Economic Survey reportedtoday, without saying where it got the information.
Current oil prices threaten the global economy and hurt thelong-term interests of oil producers, Ibrahim al-Muhanna, anadviser to al-Naimi, was cited as saying by the weekly newsletter,based in Cyprus.
`Very, Very Soon'
Khursaniyah will start ``very, very soon, definitely within thenext month,'' Khalid A. Al-Falih , who is also an executive vice president at Saudi Aramco, said ina telephone interview today. He couldn't say when full productionwould be reached. The field is forecast to produce as much oil asthe daily output of Ecuador , OPEC's smallest member.
Oil in New York rose more than sevenfold since trading at $17.45 abarrel in November 2001, and reached 28 record highs this year. Asimilar pattern was seen in equities eight years ago, whenInternet-related stocks sent the Nasdaq Composite Index up 640percent to its highest level ever, according to data compiled byBloomberg and Bespoke Investment Group LLC.
Brent crude oil for July settlement declined $2.59, or 1.9 percent,to $133.50 a barrel on London's ICE Futures Europe exchange. Pricesclimbed to a record $138.12 on June 6.
``Saudi Arabia is trying to lower prices with hints of a majorincrease in output and the announcement of the new field coming online this month,'' said John Kilduff , vice president of risk management at MF Global Ltd. in New York.``All signs point to higher interest rates and a further increaseto the dollar.''
Rising Dollar
Prices also dropped because the rising dollar reduced the appeal ofcommodities to investors looking for an inflation hedge. The U.S.currency is heading for its biggest weekly gain versus the euro inmore than three years as inflation accelerated in May, raisingspeculation the Federal Reserve will increase borrowing costs thisyear.
The dollar increased 0.6 percent to $1.5343 euro at 9:47 a.m. inNew York, from $1.5439 yesterday. The U.S. currency climbed 2.9percent this week against the euro, the biggest increase sinceJanuary 2005.
The U.S. consumer price index increased 0.6 percent after a 0.2percent gain the prior month, the Labor Department said today inWashington. The surge in prices has caused inflation expectationsto rise, stirring concern among Fed officials after they loweredinterest rates seven times since September.
To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net . Last Updated: June 13, 2008 11:26 EDT