Reply #17: Saudis back increase to at least $75 [View All]

http://www.ft.com/cms/s/0/0327ac08-4a92-11de-87c2-00144feabdc0.html



The world economy has strengthened enough to weather oil prices at $75-$80 a barrel, the Saudi oil minister, Ali Naimi, said on Wednesday, suggesting that Opec no longer sees a need to support the global recovery with low oil prices.

Mr Naimi’s comments, which were echoed by other Opec officials, point to a shift in the policy of the cartel, which supplies about 40 per cent of the world’s oil and that earlier this year gave the impression it would not push prices higher too quickly...

“The price rise is a function of optimism that better things are coming in the future,” Mr Naimi said, adding that customers were already demanding more oil from the kingdom. Saudi Arabia has so far refused to pump more.

The $75-$80 a barrel level – a tacit target for the kingdom – could be reached later this year as oil demand continued to improve, Mr Naimi said.

In spite of Saudi Arabia’s renewed optimism, many traders in the physical oil market are far less sure that demand is improving significantly, with consumption still weak in the US and Europe. The International Energy Agency, the western countries’ oil watchdog, sees oil consumption contracting this year by 2.6m barrels a day, the steepest fall since 1981.

Only a handful of Wall Street’s analysts believe that oil prices will rise to $80 a barrel by the end of the year and Mr Naimi conceded that all the increase in oil prices was “not purely fundamental”, suggesting that speculative money was also a factor driving prices...

With Opec restricting its production, higher consumption will slowly drain today’s record high inventories, pushing prices higher. “Demand is picking up, especially in Asia,” Mr Naimi said.

Nauman Barakat, at Macquarie bank in New York, said Saudi Arabia was confirming that the oil market was on the “mend”, with the kingdom “in no hurry to put a brake on the market at least until” prices hit $75-$80 a barrel.