Oil at close to $70 means Opec will almost certainly keep existing output cuts in place when it meets in Vienna on Wednesday, although it could seek to tighten compliance with existing targets, ministers and delegates said.
”The market is in very good shape, very well supplied, the price is good for everybody, consumers and producers,” Saudi Oil Minister Ali al Naimi said on arrival in Vienna in the early hours of Tuesday.
When asked if he thought Opec needed to cut output at its meeting late on Wednesday, Naimi said: ”With the price ranging between $68 and $73, what else do you want? The price, everybody likes, consumers and producers.”
Oil rose towards $69 a barrel on Tuesday.
Opec has kept official output targets steady since it announced late last year a record cut of 4,2-million barrels a day from September 2008 production.
But as the oil market has recovered from a low of $32,40 in December — its weakest in nearly five years — to this year’s peak of $75 hit in August, it has reduced levels of compliance with the agreed curbs from a peak of about 80% of agreed cuts to less than 70%.
The lapsing discipline has contributed to an inventory build that has taken stocks to the equivalent of nearly 62 days of forward cover, according to the International Energy Agency — about 10 days more than Opec views as comfortable.
”A major issue will be compliance. It will be discussed and stressed by many countries with the hope others will comply,” a Gulf delegate said.
”The most likely outcome is that they will keep the ceiling and quota unchanged,” he said. ”It’s going to be a smooth and easy meeting.”
For some in Opec high stocks are a greater issue than they are for others, although all members have been pleasantly surprised by the strength of the oil market’s rally in defiance of bulging inventories.
The price has been buoyed by a wave of confidence across markets, which have begun factoring in economic recovery — which implies higher fuel demand.
When the economy was still fragile earlier in the year, Saudi Arabia said it was at ease with an oil market around $50, although that level was well below the $75 it has said was needed to stimulate investment in new supplies.
The leading exporter has assumed the biggest share of output cuts while discipline from other members, notably from Opec president Angola, has declined.
The different levels of adherence complicate the task of any new cut, although some analysts have said Opec might have to address when to reduce supplies even if any new curbs will not be agreed this week.
Others have said the high levels of inventory are serving to prevent the oil market becoming too strong, which could damage nascent economic recovery.
”Where would we be if Opec had oil inventories where they wanted? It would be over $100,” said Gary Ross, chief executive of consultancy Pira Energy. — Reuters