The global economy has strengthened enough to cope with oil at US$75 to US$80 a barrel and that level will be hit soon as fuel demand picks up, Saudi Oil Minister Ali al-Naimi said yesterday.
Oil has already climbed from a low of US$32.40 last December to six-month highs well above US$60 a barrel this week.
“The price rise is a function of optimism better things are coming in the future,” Naomi told reporters in Vienna.
PHOTO: BLOOMBERG
“We see offshoots of recovery,” he said. “There are a lot of positives in what I say because I am seeing a recovery.”
Naimi was speaking to reporters ahead of today’s meeting of OPEC, which he said did not need to change the group’s output policy.
“There is no need to cut production” and members should “stay the course,” he said.
He also said calling another extraordinary meeting before the group’s next regular meeting in September would “make no sense.”
US crude futures, the international benchmark, are above the US$50 a barrel a level OPEC had said it was willing to live with while the global economy recovered from deep recession, but still below the US$75 to US$80 Saudi Arabia and other producers have said was needed to drive investment in new energy supplies.
As a stronger economy boosts energy demand, Naimi said oil inventories would shrink, with the increase in consumption driven by emerging economies.
“Demand is picking up, especially in Asia,” he said.
He saw increased fuel use in Latin America and the Middle East, but an only limited upturn in consumption in the world’s leading energy consumer the US.
Oil inventories have reached the equivalent of around 62 days of forward cover, but Naimi saw them shrinking to 52-to-54 days, a level OPEC considers comfortable.
“Demand is picking up. It will bring down the days of forward cover and we will be happy thereafter,” he said.
Before last December’s crash, oil prices had risen to a record of nearly US$150 a barrel last July.
Producers, concerned about destruction of demand, as well as consumers said that level was too high.
Naimi has warned under-investment in bringing new energy supplies onstream could drive prices sharply higher once again and said the challenge would be to keep prices at a fair level for all.
“That is the biggest challenge,” he said when asked how to contain any price rise. “It’s very difficult. There are too many players in the market. It’s impossible with so many players.”
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