Ministers of the Organisation of the Petroleum Exporting Countries (Opec) on Thursday decided to ”stay the course” and keep output steady as they bet on a strengthening economy and tentative signs of increased demand to boost oil prices.
”Stay the course, this is the decision,” Saudi Oil Minister Ali al-Naimi told reporters following just less than two hours of talks, which had been widely expected to maintain existing production targets.
Some members voiced concern that high levels of inventory could depress prices, but Naimi said demand was rising and would drain away excess supplies.
”The price is good, the market is in good shape, recovery is under way. What else could we want?” he said.
United States oil futures have already reached six-month highs well above $60, almost double levels plumbed in December.
Naimi said the world was ready to cope with oil at $75 to $80 a barrel and predicted it could reach that level before the end of the year, although other ministers said it could take longer than that.
Oil around $75 to $80 is the price producers say is needed to sustain investment in new supplies for the long term.
Following its previous meeting in March, when prices were still below $50 a barrel and inventories were already very high, Opec had signalled it was willing to live with prices around that level while the world economy gathered strength.
Merry in May
The mood of the May meeting was much more upbeat.
”I believe that the spirit of our final communique is sending a signal of optimism that all members of the organisation are currently feeling,” Angolan’s Oil Minister Jose Botelho de Vasconcelos, who is also Opec president, said.
”This optimism is coupled with some realism.”
The US, the world’s biggest economy and biggest energy consumer, has cautioned too high an oil price could be financially painful, although US President Barack Obama said his country had ”stepped back from the brink”.
Obama and Saudi King Abdullah were expected to discuss oil prices at a meeting next week in Riyadh.
The last time Opec changed its output targets — which stand at a total of 24,84-million barrels a day for the 11 Opec members with output restrictions — was at its December meeting in Algeria.
In all, Opec has lowered output by 4,2-million barrels a day and has implemented about 80% of the promised cuts, estimates by secondary sources have found.
Ministers said Thursday’s meeting had urged tougher compliance, but few analysts expect discipline to get tighter and note it is already historically high.
The more bearish in Opec have said rising oil prices could lead to a false sense of security and an unravelling of Opec discipline, especially as Opec members, such as Venezuela and even the Opec president Angola, have taken issue with their output targets.
”Now the prices are going up, people are more likely to increase production and this could have a negative effect on prices,” a delegate told Reuters.
A measure keenly watched by Opec is inventories translated into days of forward demand cover.
According to the International Energy Agency, they equate to 62,4 days, the most since 1993, but Naimi has predicted rising demand would push them back to the equivalent of 52 to 54 days.
Opec will next review its output policy at its ordinary meeting on September 9. — Reuters