OPEC: $45-55 for crude oil basket
OPEC targets a higher long-term price that will justify more costly investment without jeopardising global growth.Updated: Dec 22, 2005 19:10 IST
The Organization of the Petroleum Exporting Countries gave fresh indications on Thursday that it was at ease with US oil prices above $50 a barrel, a level officials said the world economy has taken in its stride.
Oil traders and economists are eager for any sign that the cartel, which controls over a third of world production, is close to agreeing a new price target after a nearly three-year rally in oil markets proved the world can withstand much higher energy costs than thought, prompting OPEC to abandon its old range.
Acting OPEC Secretary-General Adnan Shihab-Eldin and OPEC President Sheikh Ahmad al-Fahd al-Sabah, both on a visit to China, said they expected the price of the cartel's basket of heavy crudes to remain between $45 and $55 a barrel.
"That (price) seems to have been helping to keep the market well supplied and at the same time not hurting the world economy," Shihab-Eldin told journalists ahead of meetings with Chinese officials, OPEC's first with the world's no 2 oil consumer.
The basket B-was last valued at $51.37 a barrel on Tuesday. It has not exceeded $55 since mid-October.
The $45-$55 range equates broadly to around $52-$60 a barrel for US oil futures which have soared 35 percent this year as rising demand from China and the United States strained the industry's ability to supply fuel.
Last year's surge in demand caught out OPEC, forcing it to pump near full throttle and giving it little ammunition to fight high prices. Producers say limited refining capacity, something it has little control over, has propelled prices this year.
Despite its limited leverage this year, many analysts believe OPEC will regain some control over prices next year as moderating demand growth, new refining capacity and rising non-cartel production allow the group to rebuild a spare capacity cushion, giving it more scope to raise and lower output to adjust prices.
Sheikh Ahmad, who is also Kuwait's oil minister, reiterated that the cartel would have to consider cutting production at its late-January meeting unless prices stayed high. He did not give a specific price target.
"We believe in the second quarter there will be a decrease in demand, for that we will have to do something on January 31 unless prices keep on high levels," Sheikh Ahmad told reporters in Beijing, where he was due to meet with Chinese officials.
The cartel, pumping at about 30 million barrels per day (bpd), its highest in a quarter century, decided at its meeting last week to defer any cuts in output quotas until next year. Oil demand peaks in the first quarter and slumps in the second.
Venezuela's oil minister, typically hawkish on prices, said on Wednesday the cartel would cut output early next year and that he considered current oil prices "fair".
The reference to a specific band was more evidence that OPEC is targeting a higher long-term price that will justify more costly oilfield investment without jeopardising global growth.
OPEC abandoned its old price target of $22-$28 a barrel but has yet to establish a new range that would give traders more clues to output policy from the 11-member cartel.
Instead, OPEC officials have said they were attempting to control inventory levels in developed countries as a way of ensuring markets remained well supplied without causing a glut.
"I think the stability is the most important thing and we're hoping that the indications of stability we have seen over the last few months will continue," said Shihab-Eldin.
"Once this happens I think we'll be able to say much better what is the most stable price range."
He said it was too early to say what the cartel would decide at its next meeting at the end of January but added that the market was "well balanced in terms of supply and demand".
First Published: Dec 22, 2005 11:16 IST