Kate Mackenzie Opec: $75 – $80 oil is okay, says Naimi

When an Opec meeting is held in Vienna, it includes a curious ritual for reporters: jogging alongside Saudi Arabian oil minister Ali Naimi early in the morning the day before the cartel’s decision for any hints of what may come. Our own commodities correspondent Javier Blas was up and ready with his running shoes at 7.30am to try and get some insight. Naimi told him he sees demand pushing prices up and that the cartel may not have to cut production this time around.

More from the story on FT.com (emphasis ours):

Mr Naimi added that Opec did not need to cut its production, arguing that the cartel would “stay its course”.

Opec, which produces about 40 per cent of the world’s oil, has reduced sharply its production since September to combat the decline in oil prices.

The oil market is likely to keep its options open before Thursday’s meeting despite the comments by the cartel’s de facto leader and other ministeres as Opec has surprised traders in the past, reversing its course at the very last minute.

Opec output cut’s campaign has so far brought its fruits, with prices jumping above $60 a barrel from a 4-year low of $32.7 hit in mid-February. In early trading on Wednesday, West Texas Intermediate, the US oil benchmark, jumped to a fresh 7-month high at $63.05 a barrel, up 60 cents. Brent rose 32 cents to $61.43.

Mr Naimi said that the global economy has now recovered enough to cope with even higher prices, around $75-$80, and added that level – a tacit target for the kingdom – might be reached later this year as oil demand continues to improve.
“The price rise is a function of optimism that better things are coming in the future,” Mr Naimi told reporters during his morning jogging, adding some customers were now asking Riyadh for more oil. “Demand is picking up, especially in Asia.”  When asked to describe how large was the increase, he said: “It is a good pick up.”

Mr Naimi’s comments come as many traders in the physical oil market are far less optimist, pointing to still weak demand outside Asia and record high inventories. The International Energy Agency, the western countries’ oil watchdog, forecast oil consumption will contract this year by 2.6m barrels a day, the steepest drop since 1981.

Mr Naimi conceded, nonetheless, that all the increase in oil prices was “not purely fundamental”, suggesting that speculative money was also a factor driving prices.

Yesterday we wrote about comments from Banc of America Securities-Merrill Lynch which suggested $70 – $80 would be tolerable, but higher than that would put pressure on OECD countries.

Related stories:
Naimi says world can live with $75 – $80 oil
(FT, 27/05/09)
Oil prices and the recession redux, and what it could mean (FT Energy Source, 26/05/09)