Saudis Seek to Calm Oil Panic

Saudi Arabia moved to calm mounting global fears of an oil supply crisis after panic buying sent crude prices to a 2½-year peak of almost $120 a barrel.
Indicating that Opec's biggest producer is prepared to increase supplies, the kingdom entered "active talks" with European oil companies on how to meet the shortfall caused by the turmoil in Libya.
Brent crude futures, the global benchmark, have risen as much as $17 since violence broke out in Libya last week. Saudi Arabia has asked "what quantity and what quality of oil" European refiners want, a senior Saudi oil official told the Financial Times on Thursday.
Oil traders fear the disruption of Libya's oil industry could leave the market with a minimal supply cushion if another big Middle East producer became engulfed incrisis. "It is fear of the unknown. The risks are all to the upside," said one senior oil trader. "Saudi Arabia needs to respond."
Vladimir Putin, Russia's premier, said that the surging oil price was "a serious threat to economic growth in the world", echoing concerns voiced by other leaders.
Economists fear the price rise could deliver a shock to sentiment comparable to last year's sovereign debt crisis in Europe. The shortfall caused by Libya means the market is seeing its biggest supply disruption since hurricane Katrina destroyed most US production in 2005.
Saudi oil mapPrices softened to $114 a barrel after the FT reportedthe Saudi talks, but investors still sought safe havens for assets with the Swiss franc hitting a record against the dollar and gold nearing a record high.
Governments are also involved in the discussions with Saudi Arabia, according to a European official familiar with the talks. "This goes beyond companies' supplies, it involves governments worried about security of supplies."
Saudi Arabia is considering two options, according to the Saudi official.
The first would be to boost production and send more crude through the east-west pipeline, linking the country's largest oilfields in Eastern province with the Red Sea port of Yanbu, for shipment to Europe.
Another possibility would be a swap arrangement, whereby West African oil intended for Asian buyers is redirected to Europe, with Saudi Arabia stepping in to supply Asia.
"Right now, there are active talks in order to implement what is needed," the Saudi official said. He stressed that the kingdom retains spare capacity of some 4m barrels a day -- more than double Libya's entire output, which totalled 1.58m b/d in January, according to the International Energy Agency.
Saudi Arabia has not yet decided whether to increase production If it proved necessary to produce more, "then that will happen, there's no problem at all", the official said.
Austan Goolsbee, chair of the White House council of economic advisers, said the US was monitoring developments in the Middle East but that the economy had become less sensitive to fuel prices.
Energy used per dollar of real US gross domestic product has halved since the 1970s, but energy intensity is much higher in emerging economies.