NEW YORK (Dow Jones)--President George W. Bush prepared late Tuesday to tell Saudi Arabia's King Abdullah that increased oil supplies "would be helpful" to the U.S. economy.
As the leader of the world's largest oil consumer and the world's largest oil exporter met at the king's horse ranch, a startling trend emerged from U.S. government oil data: The Saudis already are playing the strongest role they have in supplying the U.S. crude oil market in nearly five years.
In the first 11 months of 2007, the kingdom eclipsed Mexico as the No. 2 crude oil source, figures from the Energy Information Administration show. The Saudis haven't ranked as the second-biggest crude supplier to the U.S. for a full year since 2002.
In November 2007, the U.S. imported 1.530 million barrels a day of Saudi crude, the most since May, preliminary EIA data show. The kingdom's 15.4% share of U.S. crude oil imports, which averaged 9.948 million barrels a day in November, was the most since December 2006.
In the latest four months of data available - from August to November 2007 - the Saudis have ranked second, ahead of the traditional No. 2 supplier, Mexico, and behind Canada, which has been the top crude oil supplier for 21 months, since March 2006.
The Saudi ranking in the table of top U.S. crude suppliers hasn't been so high over four consecutive months since 2003, when the kingdom was the No. 1 supplier between March and July 2003.
But the ascent of the Saudis in the U.S. market - amid still-restrained output - speaks less about the kingdom than it does about a precipitous drop in oil imports from Mexico.
In the first 11 months of 2007, U.S. crude oil imports from Saudi Arabia inched up by 1%, to 1.432 million barrels a day, while imports from Mexico skidded 11.3%, to 1.426 million barrels a day, a drop of more than 180,000 barrels a day from a year ago.
Saudis Ahead, Mexico In Reserve
Both countries account for about 14.3% of U.S. imports in the January-November 2007 period, but the Saudi number is an increase from less than 14% in the comparable 2006 period, while Mexico's figure is a drop from a 15.8% share.
Mexico hasn't ranked below the top or second spot in the table of U.S. top crude oil suppliers for four straight months since October 2000 to March 2001.
Mexico's slide reflects declining output from its large Cantarell oil field and recurring short-term storm-related disruptions of output and exports. Data from state oil company Pemex show crude oil output in the first 11 months of 2007 averaged just over 3 million barrels a day, down 172,000 barrels a day, or 5.4%, from the year-earlier comparative period.
The EIA projects Mexico's crude and natural gas liquids output will drop by 4.9% for all of 2007 and decline by a further 4% this year and by 3% in 2009.
Pemex has stated a goal of keeping crude oil output above 3.1 million barrels a day through 2012.
The slippage in crude shipments from Mexico and the concurrent higher Saudi share come as the U.S. tries to lower its reliance on imported oil, specifically from the Middle East.
While crude oil futures prices are nearly double the level they were at when the president and the king last met in April 2005 - and Saudi output is 5% less than it was then - Bush seemed ready to take a tempered approach to coaxing out increased supplies and an appreciation of the underlying realities of the market.
In a roundtable interview with reporters at a guest palace in Riyadh on Tuesday, Bush said he was planning to express concern about high oil prices to the king later that night.
Asking King To Open Taps
"My point to His Majesty is going to be, when consumers have less purchasing power because of high prices of gasoline - in other words, when it affects their families - it would cause this economy to slow down. If the economy slows down, there will be less barrels of oil purchased," Bush said.
A White House transcript shows the president elaborating, even if unaware of the realignment revealed by the latest data. "Now in our case, just so the American people know, most of our oil comes from Canada and Mexico. But oil is a market. It's globalized, it's fungible," he said.
Bush said he discussed his concerns about high prices with "members of his administration," and planned to raise the issue with Abdullah at the farm.
Asked what he wanted from the King, Bush said, "Well, first of all, is a realization that high energy prices can damage consuming economies. It can hurt the economy ... I talked to His Majesty early on in my presidency in the hopes that they would explore for new fields; they have. They've increased their capacity. But in the meantime, demand has gone up substantially."
Would the president ask the king to open the taps to lower the prices?
"Well, that's the question," Bush said. "I hope that OPEC, if possible, understands that if they could put more supply on the market it would be helpful. But ... a lot of these oil-producing countries are (pumping oil) full out."
The Organization of Petroleum Exporting Countries meets Feb. 1 to consider oil output policy, and Saudi Arabia, the de-facto leader of OPEC, holds the bulk of the world's idle production capacity.
Saudi Oil Minister Ali Naimi said Tuesday the kingdom would raise oil production only when the market justifies it. Naimi said global oil inventories appear to be "normal."
"I'm sure no one will look with pleasure on a recession in the U.S. On the contrary, all our effort is to maintain prosperity and growth in all countries particularly the number one (oil) consuming nation in the world," Naimi said.
But he cautioned oil isn't the only reason for the slowing U.S. economy.
While Naimi appeared cool to the prospect of higher Saudi output in response to the U.S. request, the oil minister would be the first to say that policy decisions are taken by the king. Before OPEC meets, the U.S. energy secretary will be meeting with oil ministers in the Gulf, on the heels of Bush's visit.
But the near-term course of the market may be set by how the king responds to the president down on the farm Tuesday night.
Source; David Bird, Dow Jones Newswires; 201-938-4423; david.bird@dowjones.com