Published: Dec 24, 2010 00:17 Updated: Dec 24, 2010 00:17
CAIRO: Arab OPEC ministers began arriving in Cairo on Thursday ahead of talks expected to broach how high an oil price the world economy can stand as crude jumped to a more than two-year high above $91 a barrel.
A full conference of the Organization of the Petroleum Exporting Countries earlier this month elected to make no change to an output policy it has stuck to since December 2008.
Since then oil has maintained a more than 30 percent rally from this year’s low struck in May and this week scaled a high of $91.63, the steepest in two years.
Crude oil prices for February delivery on the New York Mercantile Exchange rose 89 cents, or 0.98 percent, to $91.37 a barrel on Thursday. Cold weather in the United States plus shrinking US stockpiles and projections among OPEC members and analysts that prices could reach $100 a barrel soon, supported the market even with the greenback’s strength.
The Organization of Arab Exporting Countries (OAPEC) brings together the Arab members of OPEC including top exporter Saudi Arabia, as well as non-OPEC countries Tunisia, Egypt, Syria and Bahrain.
Ministers began arriving on Thursday in time for Saturday’s meeting when they will not take any formal decision on output but can still discuss production and price.
“About $100 would be a fair price for the time being,” Libya’s most senior oil official Shokri Ghanem told Reuters on arrival in Cairo. He said it was too early to talk of changes to oil output.
Analysts have said the likelihood is the strong price would encourage OPEC to produce more oil, although first of all by informally pumping in excess of agreed limits rather than through a policy change.
“I think we are going to see more production because oil is above $90,” said Patrick Armstrong of London-based Armstrong Investment Managers.
“The market could easily go for $100 because we’re starting to see more commodities allocation to preserve the real value of investment portfolios, but I don’t think we’re going to see scenarios for spikes.”
Saudi Minister of Petroleum and Mineral Resources Ali Al-Naimi said at the start of November consumers were looking for prices in a $70-$90 range.
He later reiterated a view the Kingdom has held for two years that $70 to $80 was the best range for producers and consumers, ensuring enough revenue to generate investment in new supply while avoiding the economic damage that could destroy demand.
But others in the group have pressed for a higher price, arguing quantitative easing and a weakened
In Quito earlier this month, OPEC Secretary-General Abdulla El-Badri said OPEC would base any change in policy on fundamentals of supply and demand, rather than price alone.
“If it goes to $100 due to speculation, OPEC will not move,” EL-Badri said.
OPEC’s record output cut of 4.2 million barrels per day agreed in December 2008 leaves plenty of room for informal adjustments.
Its members have only delivered around half of their promised cuts, a Reuters survey found.
OPEC stuck closest to its output limits in the first part of 2009 when it worked hard to shore up a market that had crashed down to just above $30 a barrel after hitting the July 2008 record of nearly $150.
An anticipated increase in oil demand next year is expected to take absolute consumption to a new high, but analysts are still careful to draw a distinction between the current market and the protracted bull run that began at the start of the decade and culminated in the 2008 record.
The rate of demand growth next year has been pegged at 1.5 million bpd, a Reuters poll showed, only half the 2004 peak, according to data from the International Energy Agency, of 3 million bpd.
At the same time, OPEC spare capacity is ample at several million barrels per day, and crude inventories in the world’s biggest oil consumer the United States are still above year-ago levels, even after a sharp drop reported this week.