Some Opec members have limited their oil price ambitions in 2009 due to the weak world economy, despite Opecs belief that higher prices are needed to support investment in new supplies. Algeria and Libya said they expected oil to reach $60 a barrel by the end of the year from near $48 now - much less than the $75 that leading Opec producer Saudi Arabia and others consider a reasonable price.
The producer group agreed on Sunday to leave output targets unchanged and enforce supply curbs more strictly. The move comes amid some evidence that output cuts so far are starting to remove excess oil from the market. Libyas top Opec official said he expected demand and prices to rise this year, potentially avoiding the need for further supply restraint by the Organisation of the Petroleum Exporting Countries at its next meeting on May 28.
"I think it will be around $60 by the end of the year," Libyas Shokri Ghanem told Reuters financial television on Wednesday during an Opec seminar in Vienna, where Opec met on Sunday. Algerias Energy and Mines Minister Chakib Khelil made a similar price prediction to Ghanems on Tuesday. Opecs supply restraint since September has helped to pull prices up from a low of $32.40 in December. Even so, analysts say the grim economic outlook and weak stock markets are keeping a lid on the rally.
An official from Iraq, whose economy is suffering due to oils $100 collapse from a record near $150 last year, said the price could rise as high as $60 in the fourth quarter but the economy was the sticking point. "The problem is that there is so much economic uncertainty out there," Iraqs Opec governor Falah Alamri told Reuters on Monday. "We dont know how much worse it is going to get, at least for the next few months."
SETTING A FLOOR? Saudi Arabian Oil Minister Ali al-Naimi said on Wednesday Opecs cuts had steadied the market. "I think Opec has succeeded in stabilising prices," he said. "The next thing is to hope for a gradual improvement in prices over time." Opec needs to remove about 800,000 barrels per day (bpd) from the market to comply fully with its 4.2 million bpd of pledged curbs. Some analysts also expect oil to rise this year as the curbs erode high stockpiles.
"One of the reasons why Opec felt able to roll over quotas was that they do appear to have set a floor for prices," said Mike Wittner of Societe Generale. He forecasts Brent crude will average $60 in the last three months of 2009, up from about $47 now. "According to a lot of the balances including ours, if you have Opec holding steady or cutting a bit more, you get a big, counter-seasonal stock draw in the third quarter," he said.
Algerias Khelil said that stock markets should rebound after a G20 meeting scheduled for April 2, which he expected to lead to a package of measures to stimulate economies, and give oil a lift. "Im sure stock markets will rebound after the meeting and that will help a rebound in oil," he said. He also predicted oil demand in the third quarter, after the normal seasonal slowdown in the current quarter, will be much higher.
Before Opec met in Vienna on Sunday, there were signs that lower supply from the 12-member group was tightening the physical oil market, lessening the need for a further cutback. Those include, analysts said, a recent increase in the value of medium-sour crude oils such as Russias Urals which are similar to those of which supply has fallen due to Opec supply restraint.
Khelil added that there are "some signs" that oil companies such as BP Plc were withdrawing oil from storage, indicating a stronger market. But other analysts expect the economic crisis, which is causing world oil demand in 2009 to decline for a second year, to limit oils rally despite lower supplies from Opec and some producers outside the group.
Harry Tchilinguirian of BNP Paribas expects the price rally to be "shallow" because economic growth in developed countries is not expected to emerge until mid-2010, later than previously thought. He expects Brent crude to average $57 a barrel in the fourth quarter. "But given our economic outlook, the price recovery we anticipate compared to others is more modest," Tchilinguirian said.