Mon, Apr 11, 2005 page12

• `Super-spike' not imminent: OPEC

  OIL PRICES Concern that OPEC won't be able to meet demand is unjustified, an official said after a report suggested that prices may increase to US$105 a barrel

  • BLOOMBERG
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  Crude oil won't climb as high as the US$105 a barrel suggested in a report by a Goldman Sachs Group Inc analyst, said OPEC's Acting Secretary-General Adnan Shihab-Eldin.

  "We do not think that prices have to go that high," Shihab-Eldin said in an interview on the Australian Broadcasting Corp's Inside Business program yesterday. A March 30 report by Goldman analysts said crude oil prices may reach US$105 because of a "super spike" caused by increasing demand.

  Shihab-Eldin, a Kuwaiti who formerly headed research at OPEC, said prices are "high enough and maybe too high and we need to bring them down to a moderate level."

  OPEC, which pumps about 40 percent of the world's oil, has raised its output four times within a year in an effort to prevent record prices from damping global economic growth. It last boosted its output target by 500,000 barrels a day on March 16. Members increased daily production by 238,000 barrels to an average of 29.92 million barrels a day last month, according to a Bloomberg survey.

  Oil for May delivery fell US$0.79, or 1.5 percent, to US$53.32 on the New York Mercantile Exchange on April 8, the fifth straight day of declines and the longest stretch of falling prices since August. Prices are still 44 percent higher than a year ago and touched a record US$58.28 last Monday.

  Concern that OPEC won't be able to meet rising demand in the event of terrorism in Saudi Arabia or Iraq, or political instability in producers such as Venezuela or Nigeria, has contributed to higher prices and isn't justified, Shihab-Eldin said.

  "We believe OPEC will continue to make investment and will have the right amount of oil production capacity -- and some to spare -- should there be a disruption," he said. "We were able to meet the disruption in Iraq in 2003 and in 1990 the disruption from the Kuwait crisis."

  The organization's 11 members are targeting 10 percent "spare capacity" in order to respond to sudden disruptions, he said.

  Saudi Arabia, the world's biggest oil exporter, may boost its output capacity by a third in the next 15 years to help avert shortages and lower prices, the country's oil minister said last Tuesday. The country, which has an output capacity of 11 million barrels a day, could pump 15 million barrels a day "anytime over the next 15 years," Ali al-Naimi said.

  OPEC suspended its price target of US$22-US$28 a barrel in January and work is under way to set a new range that may be announced in September, Shihab-Eldin said.

  A "more realistic" band could have a lower limit of US$20-US$30 and a high end of "maybe US$50," he said. "We are still continuing our studies."

  Goldman equity analyst Arjun Murti discussed the possibility of US$105-a-barrel oil in a report titled Super Spike Period May Be Upon Us. Murti's report drew criticism from investor Jon Burnham at Burnham Securities Inc in New York, who described it as "self serving" because Goldman is one of Wall Street's two largest commodity traders.

  Goldman Chief Executive Henry Paulson on Wednesday said his analysts are totally independent from traders, who were "as surprised as everyone else was" by Murti's report.

  Media reports simplified Murti's report, Paulsen said.

  "Goldman Sachs isn't predicting that it's going to go up to US$105," he said.
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