Top oil exporter Saudi Arabia has boosted supply to help meet the world's need for fuel and may further increase output later if needed, a senior Gulf OPEC source said on Wednesday.
OPEC's 13 members, especially core Gulf producers, are taking their output cues from global oil demand rather than sticking to production targets, said the source familiar with Saudi thinking.
"Whenever there is demand it will be met by OPEC," he said. "The majority of OPEC producers definitely don't like this high oil price because it is neither in their interest nor in the interest of the global economy, and it's especially painful for the developing world."
U.S. crude hit a record above $135 a barrel last week, prompting consumer countries such as the United States to renew their plea for more oil from the Organization of the Petroleum Exporting Countries.
OPEC's leading producer Saudi Arabia has been adjusting supply to match demand since August last year when prices were around $60 and it was pumping around half a million barrels per day (bpd) less than now.
Saudi Oil Minister Ali al-Naimi said earlier this month output would rise by 300,000 bpd and hit 9.45 million bpd in June.
Riyadh is pumping about 9.1 million bpd this month, the source said.
Global demand is likely to increase this year by about one million bpd, with demand picking up in the third quarter, the senior Gulf OPEC source said, which explains the current Saudi production increase.
Last September OPEC agreed a 500,000 bpd increase in its formal output targets, with Saudi Arabia providing the greatest share.
The group holds its next official conference on Sept. 9 in Vienna.
Most OPEC members would like to see lower prices, but there was little they could do as the market was responding to factors beyond supply and demand, the source said.
If those fundamentals dictated the price, oil would cost around $60 to $70 a barrel, the source said.
The world oil market balance is similar to that in 1999, when the price was less than $20, he added.
The oil market has risen in large part because of increasing doubt over production capacity and global oil reserves, the OPEC source said.
That concern was unwarranted, he said, but helped to explain a roughly $5 premium for crude prices for delivery in 2016 compared with the prompt contract now trading at about $126 a barrel.
A wave of investment activity has also been fuelled by the weakness of the U.S. currency and lower U.S. interest rates, which adds to the appeal of dollar-denominated commodities.
"This big rush to oil futures is definitely leading to higher and higher prices," he said. "So adding more or taking less oil from the market will not change the oil price since the sentiment of investors in the futures market is pushing for higher prices."