OPEC appears unlikely to raise oil supply limits to cap an oil price rally when it meets in Quito on Saturday, with ministers insisting world economic growth can hold up with crude at $90 a barrel.
OPEC ministers going into the Dec. 11 meeting in the Ecuadorean capital have said that the world economy can handle up to $90, increasing their previous range of prices considered acceptable for consumers.
Saudi Oil Minister Ali al-Naimi flagged the change last month, adding $10 to the top end of the $70-$80 ideal range that Riyadh said it preferred over the past two years.
"A crude price of $90 is not yet a trigger to put more oil into the market," said New York-based John van Schaik at Medley Global Advisors.
"OPEC will not fiddle with its official output targets at this meeting," he added. "It will continue tweaking its actual output to balance the market, to see to it that supply meets demand."
The 12-member Organization of the Petroleum Exporting Countries has not officially changed production policy since December 2008, when it reacted to a recession that had crushed fuel demand by announcing its deepest-ever supply cuts.
$90 NO MAGIC NUMBER
"Everybody seems to be comfortable with these prices. $90 is not a magic number," said David Kirsch, director of market intelligence services at consultancy PFC Energy in Washington.
"OPEC has been generally pleased with economic growth and oil demand," he added. "They see higher prices as consistent with macroeconomic conditions. Any adjustments that need to be made to output can be made through minor tweaks and do not need to be enshrined in a formal agreement, at least at this time."
Even energy consumer watchdog the International Energy Agency does not appear concerned that OPEC is letting oil prices get out of hand.
The oil market will have plenty of supply if OPEC keeps producing at current levels, International Energy Agency Executive Director Nobuo Tanaka said on Monday.
With zero expectation of any change in policy, oil traders will be looking for signals from ministers about the conditions they consider necessary to trigger more supply in 2011.
"If oil prices start heading toward $100 per barrel, then OPEC will be concerned," said Fadel Gheit, a New York-based oil industry analyst at Oppenheimer & Co.
"Once they lose control of oil prices on the way up they will also lose control of oil prices on the way down. Basically they would be conceding the price movement to speculators, and that's the last thing they want to see," he said.
Oil slumped from a peak of $147 a barrel in mid-2008 to a low under $33 in December of that year as the economic crisis hit fuel demand and inventories soared. OPEC cut output sharply and economic recovery this year has lifted demand.
As the cartel keeps a lid on production, world demand is recovering faster than most forecasters expected. World oil demand led by China may increase as much as 2 million barrels daily this year to over 86 million bpd and restore global consumption to pre-crash levels of 2007.
"With prices pushing $90 per barrel, no one seems to be complaining or calling for higher OPEC production. The recent rally in the dollar and high oil inventories that we are seeing around the world are probably helping," Gheit said.
At least five banks raised their mid- or long-term oil price forecasts last week, citing factors such as rising demand in emerging markets, faster global economic growth and OPEC's reluctance to boost output.
J.P. Morgan said on Friday oil would top $100 in the first half of 2011 and $120 before the end of 2012, predicting OPEC would be very slow to react to higher prices.
© 2023 Thomson/Reuters. All rights reserved.