OPEC Set to Hold Output Steady, Aims for $75 Oil

OPEC ministers set their sights on oil at $75-$80 as they readied for talks in Vienna on Thursday, but were expected to hold output policy steady and rely instead on economic recovery to drive the market higher.

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Saudi Arabian Oil Minister Ali al-Naimi said on Wednesday the world could now cope with oil at $75-$80 a barrel, the price range the kingdom considers high enough to sustain energy investment for the long term. He said it could be achieved before the end of this year.

Previously, Saudi Arabia signaled it could live with oil around $50 to help nurse the economy back to health.

Oil has already climbed from a low of $32.40 last December to six-month highs above $63 a barrel on Wednesday.

"The price rise is a function of optimism that better things are coming in the future," Naimi told reporters.

"We see offshoots of recovery,” he added. "There are a lot of positives in what I say because I am seeing a recovery."

Naimi said Thursday's meeting of the Organization of the Petroleum Exporting Countries did not need to change the group's output policy, but he stopped short of saying there was already a consensus among the group's 12 members.

On his arrival in Vienna on Wednesday, United Arab Emirates Oil Minister Mohamed al-Hamli said only the oil market was over-supplied and the meeting would "look at the numbers."

Most of the other OPEC ministers have yet to arrive.

Several members have already said they want prices to be higher than current levels and Saudi Arabia has historically been a price moderate.

Venezuela's President Hugo Chavez said on Tuesday oil prices should be heading towards $75-$80 and Iranian President Mahmoud Ahmadinejad has said a price of $80-$90 was appropriate.

Last Meeting Settled for Lower Price

When OPEC last met in March, oil was below $50. Citing the need to restore the economy, which in turn would boost oil demand, the group then called only for better adherence to existing output curbs, rather than making new ones.

Since September last year, OPEC has lowered output by 4.2 million barrels per day (bpd) and has implemented around 80 percent of the promised cuts.

The historically high compliance has helped to drive the oil price rally, which has also been sustained by expectations across financial markets that the worst is over economically.

Some analysts have said there is a lack of hard evidence behind the market rises and that strength could be temporary, although others have agreed with Naimi the oil market is beginning to show signs of fundamental strength.

Asked whether $75 a barrel was achievable, David Kirsch, director of market intelligence services at PFC Energy in Washington said "anything is possible."

"One of the key issues is whether or not $75 is sustainable from the perspective of fundamentals or whether it would hurt a global economic recovery," he added.

Provided a strengthening economy boosts energy demand, Naimi said oil inventories, which have risen to worryingly high levels as far as the producer group is concerned, would shrink back to the equivalent of 52-54 days of forward cover.

The International Energy Agency, which represents consumer countries, said in a report this month oil inventories in developed countries had risen to the equivalent of 62.4 days of forward cover, the most since 1993.

It has taken a very bearish view of demand for this year — predicting a drop in fuel consumption of 2.56 million bpd compared with last year — deeper than the fall of 1.57 million bpd forecast by OPEC's economists in their latest report.

But the IEA has also argued that because cheaper oil has stymied investment any demand recovery could drive prices back to the record levels of nearly $150 hit last July.

Naimi too has said that is a risk and the challenge was to keep prices in a stable range, fair to producers, but that does not destroy demand.

"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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