Oil around $60 a barrel is likely to convince Opec ministers meeting in Vienna this week they can stick with existing output targets, even though they are worried by swollen stocks and depleted demand. US futures were trading at above $60 barrel on Tuesday, near last week's six-month highs that were almost double a low of $32.40 hit last December.
Saudi Oil Minister Ali al-Naimi told reporters Opec would "stay the course", but could not say members of the 12-member producer group had already reached consensus ahead of Thursday's meeting. The kingdom, which is Opec's biggest exporter, has said it could live with prices around $50 a barrel to help heal the global economy, but that level is lower than producers argue is needed to ensure investment in new supplies.
Saudi King Abdullah and Naimi have both said a price of $75-$80 a barrel was fair for the longer term. Asked when that price could be achieved, Naimi told Reuters: "God willing, in the near future." He also said he hoped oil demand would rise in the third, or possibly fourth quarters and there were already signs of a rise in fuel consumption, especially in Asia.
When the Organisation of the Petroleum Exporting Countries last met in March, oil prices were below $50. Citing the need to restore the global economy, which in turn would boost oil demand, the group called only for better adherence to existing output curbs, rather than making new ones. Since the March meeting, the oil price has risen by roughly a third, although the fundamentals of supply and demand have stayed weak.
"Members are a lot more relaxed now than they were in March," an Opec delegate told Reuters. "The higher price has taken the pressure off Opec." The delegate predicted Thursday's meeting would be short and without surprises. Oil markets have drawn strength from record output cuts from Opec, totalling 4.2 million barrels per day since last September. Compliance with the promised curbs has been very high at around 80 percent, analysts have estimated.
But oil's recovery from last December's lows, which were the weakest since early 2004, has also been driven by rising equities markets. They have been pricing in expectations rather than firm evidence of economic recovery, making some Opec members nervous the rally across the financial and commodities markets is fragile.
On Tuesday, the latest economic data showed the gross domestic product of Germany, Europe's biggest economy, had shrunk 3.8 percent in the first quarter of 2009, a record contraction. As economic weakness has eroded fuel demand, oil inventories in developed countries have risen to the equivalent of 62.4 days of forward cover, the most since 1993, according to the International Energy Agency. Opec wanted days of forward cover to shrink to 53 days, which he said should happen "over time", Naimi said.
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