OPEC set to keep supply targets

With less than three weeks to go before OPEC's next meeting, a consensus emerges that group will leave production targets unchanged.

With less than three weeks before OPEC's next meeting and crude prices rising, a consensus is emerging that the oil exporters' group will leave supply targets unchanged. There are concerns that the global recovery could be harmed if crude prices climb too fast, damping prospects for a rebound in demand for fuel that would draw down swollen oil inventories. Last week crude saw its strongest weekly gain this year, rising 10 per cent to a six-month high of US$58.75 a barrel in New York. That is still well below the $70 to $80 a barrel that most OPEC members have said would be needed to stimulate investment in oil development, but above the $50 a barrel that the Saudi oil minister, Ali al Naimi, recently said was Saudi Arabia's contribution to economic recovery. Today, a member of Kuwait's Supreme Petroleum Council said he did not expect OPEC to cut output at its meeting on May 28 in Vienna. "Any new reduction by OPEC could lead prices to $60 a barrel," said Musa Marafie, according to the Kuwaiti daily newspaper Annahar. On Friday, Iran's OPEC governor, Mohammed Ali Khatibi, said OPEC would have to choose between maintaining its current output as it assesses how economic improvement influences global oil demand, and cutting production to reduce the supply of cheap oil available to be stashed away in storage tanks and anchored supertankers. That was a shift from his position of just a day earlier, when he forecast that OPEC ministers would opt for a further cut. Algeria's oil minister, Chakib Khelil, has also changed his stance in response to crude's recent strength. It has risen by nearly 18 per cent since OPEC's last meeting in March, when members decided against any change in output. Prices stabilised early this year after falling dramatically from a record high of $147 a barrel last July, thanks to a promised cut of 4.2 million barrels a day by OPEC. Paul Horsnell, the head of Barclays Capital, said on Thursday that OPEC would probably keep production targets unchanged as long as inventory growth continued to slow. "Prices are stabilising and starting to nudge up in the direction they want. $70 is not that far away," he told Bloomberg. Thomas O'Malley, the chairman of Europe's biggest independent oil refiner, Petroplus Holdings, said on Thursday that OPEC's existing cuts would push crude to $70 a barrel. That is a price that France's minister for the economy, Christine Lagarde, is prepared to live with. "We want less volatility, more predictability," she said today, before talks in Riyadh with Mr al Naimi. "Most people would agree that anywhere between $70 and $80 would be good." [e-mail]