OPEC Cautious about Demand, Mum on More Output

LONDON (Dow Jones), Apr. 14, 2010

The Organization of Petroleum Exporting Countries Wednesday maintained a cautious view about world oil demand and gave no indication it might pump more crude to quell the recent rise in oil prices.

Since early March, oil prices have closed above $80 a barrel for all but a handful of days, leading analysts to question whether OPEC is now getting comfier with a higher oil-price plateau preference. That view has been furthered following some OPEC minister comments in recent days that the group may stand pat even if crude moves north of $90 a barrel.

Since last year, most OPEC ministers have had an informal preference for prices to trade between $70 and $80 a barrel, a level seen as helpful to promoting energy investment but without hitting consumer pockets too hard. So far this month though, prices, although off an 18-month peak hit last week, have closed between $84 and $86 a barrel.

But OPEC says it isn't convinced those prices will persist for a variety of reasons, including excess quantities of unused crude globally. It also isn't as optimistic about demand as others.

In the monthly oil market report out Wednesday by OPEC's secretariat in Vienna, the group said it expects global crude consumption this year to grow 900,000 barrels a day, unchanged from its report last month, but representing just half the growth level seen by some other oil analysts.

Echoing that restrained outlook, the group said it thinks world demand for OPEC oil--referred to as the "call on OPEC" in the industry--will come in at just 28.8 million barrels a day, a downward revision of 135,000 barrels a day from its March forecast. The call on OPEC is also affected by how much oil non-OPEC nations like Mexico produce.

Global demand for OPEC barrels this year may come in at about 120,000 barrels a day less compared with 2009, according to OPEC estimates.

The 12-nation cartel, which accounts for about 40% of the 86 million barrels used globally each day, reiterated it believed that oil producer and consumer nations had a "consensus" that crude prices between $70 and $80 are key to promoting investments without disrupting economic recovery. The group also said it believed current market conditions could keep prices trading in that range.

But some ministers appear to be losing their appetite for that range.

At the end of March, Algeria's oil minister Chakib Khelil told journalists in Mexico that the days of the $70-80 preference may be ending. "The market seems to be satisfied. It's a price (range) that's acceptable for the next six months maybe," Khelil said.

Saudi Arabia, OPEC's most important member which helped rally other members around the $70-80 price preference last year, hasn't weighed in on the subject but some OPEC delegates say the kingdom will likely quietly push more oil into world markets to prevent prices from rising too much.

Saudi Arabia, a moderate on prices among OPEC members, has around 4.5 million barrels a day in spare production capacity--more than the total capacity of OPEC's second biggest producer, Iran--and could produce more barrels in order to keep oil inventory brimming and maintain a lid on prices.

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