OPEC’s oil price aspirations edge higher, again

By Alex Lawler – Analysis

LONDON (BestGrowthStock) – Oil has risen above OPEC’s comfort zone of $70 to $80 a barrel and the group is showing no sign yet of wanting to cool the rally, suggesting its price aspirations are creeping upwards.

Any further rise in prices, which are up almost 70 percent from a year ago, could dismay consumer countries and feed into higher energy costs for businesses and consumers at a time of fragile economic recovery.

Saudi Arabia, many other members of the Organization of the Petroleum Exporting Countries and some consuming nations have said they see oil at $70 to $80 as high enough for producers without hurting economic recovery.

But with oil trading above $84 on Wednesday, within sight of an 18-month high of $87.09 reached on April 6, Libya’s top oil official and two OPEC delegates said there was no prospect of a formal output increase.

“It is not a real, continuous trend,” Shokri Ghanem, the chairman of Libya’s National Oil Corporation, said of the oil price. “What we are seeing in the market is a kind of fluctuation that we cannot build a policy on.”

While Ghanem said OPEC had no price trigger to prompt it to consider boosting supplies, both delegates said oil would have to rise to at least $90 in order to prompt any formal action from the exporter group.

“I think that if the price was sustained at above $90 to $95, then maybe we would think about doing something,” one of them said. “There are no talks now about doing anything.”

While many in OPEC have been informally raising supply since mid-2009, Saudi Arabia, Kuwait and the United Arab Emirates have kept output closer to the levels agreed in late 2008 designed to combat lower demand due to the recession.

Prices are still well below the record high reached in 2008 near $150 a barrel — a surge that hit the economies of consumer countries already hurt by the financial crisis.

Even so, allowing oil to drift much higher is not without its risks because of the threat of higher energy costs to economic recovery and the stimulus they give to rival producers to expand supplies.

“Ultimately, things might turn messy for producers if $80-$100 is merely seen as the new $60-$80,” the International Energy Agency, adviser to 28 industrialized countries, said in a report on Tuesday.

The agency has said oil above $70-$80 could be risky for global economic recovery.

UPWARD DRIFT

OPEC on Wednesday made a rare written reference to $70 to $80 oil, saying in its monthly report prices are likely to trade around that level in coming months supported by improving economic and market conditions.

While OPEC has not formally set $70 to $80 as a price target, Saudi Arabia’s oil minister, Ali al-Naimi, has been praising that mark for months and many of Riyadh’s OPEC colleagues have made similar remarks.

When OPEC set formal price ceilings in the past, there was a tendency for them to be shifted upwards as they were reached, and analysts say there are signs this is happening once more.

“The downside is very clearly defined — $70 to $75 is the bare minimum that they need to make new and sustain old investments. The upside, on the other hand, is not clearly defined,” said Amrita Sen, analyst at Barclays Capital.

“Since the second half of 2009 and back at the start of the year, the fair price was very much $70 to $80, but as the year progresses and as the fundamentals improve along with prices, we expect to see OPEC’s price aspirations move higher.”

In 2004, when a surge in demand particularly from China was sending prices up, OPEC ignored an understanding between its members to raise output if prices rose above $28 a barrel, the top of its then target of $22-$28.

More recently, Gulf oil producers said in April 2009 they were content with oil around $50 a barrel in 2009 to help revive economic growth — although price aspirations climbed later in the year.

For a TIMELINE of OPEC comments on oil prices, see

When it last met in March, OPEC kept its output policy stable. It is not due to gather again until October, a longer than usual gap between meetings that analysts say indicates ministers’ confidence in recovering demand and prices.

OPEC, and Saudi Arabia in particular, remain capable of substantially adding to global supplies if needed. But it will probably take higher prices.

“If the market is trying to test OPEC’s resolve to keep prices stable, we have to expect prices to push to $90 to get them into gear,” said Lawrence Eagles, analyst at JP Morgan in New York.

“If prices go up too quickly this year to $100 and beyond, they might step in and increase production utilizing their spare capacity, but at these price levels, that would not be a worry,” said Sen of Barclays Capital.

“You would need a sustained move higher above $95-$100.”

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(Additional reporting by Simon Webb; Editing by Sue Thomas)

OPEC’s oil price aspirations edge higher, again