VIENNA (Reuters) - Oil demand is picking up as global recovery strengthens, allowing OPEC to take no action on supply this year, the group’s biggest producer Saudi Arabia said as the producers prepared to rubber stamp existing targets.
“We have been sailing very well and we will continue to sail very well,” Ali al-Naimi told reporters on Tuesday, as other members voiced concern OPEC is pumping too much oil.
In December 2008 OPEC members said they would slash 4.2 million barrels per day (bpd) from output to curb supply at 24.84 million bpd as the chill of recession threatened to shrivel oil demand.
But with rising prices in the last year and a hesitant global recovery, revenue-hungry OPEC members have increased supply. In February, OPEC delivered just 53 percent of the pledged output curbs -- down from 81 percent a year ago.
Saudi Arabia pumps more than double Iran, its nearest competitor in OPEC. But it has more closely adhered to its target of 8.05 million barrels per day (bpd) than many other members. <OPEC/O>
Naimi said on Tuesday the kingdom was producing 8.0-8.1 million bpd -- well below capacity and giving it the greatest ability among members to altering crude supplies.
“The fact that there is still a need to maintain output cuts through 2010 and the narrow distribution of spare capacity, means that Saudi price preferences and output decisions will be the key question” in the future, Eurasia Group wrote in a note.
Of OPEC’s 12 members, all but war-ravaged Iraq have limits to output and all are pumping more than they said they would.
Angola and Nigeria, which are both exceeding targets with output just under 2 million bpd each, said they took issue with their quotas.
Oil prices, however, have shrugged off the extra supplies and stayed close to levels of around $70-80 which the United Arab Emirates said on Tuesday were “acceptable and reasonable for producers and consumers,” echoing Saudi Arabia’s view.
Algerian Energy and Mines Minister Chakib Khelil thought prices will edge up into the $80-85 range by year end, while Angola said levels around $90 were too high for the market.
Benchmark U.S. crude futures gained over $1 toward $81 per barrel on Tuesday, largely driven by stock markets rallying on optimism about recovery.
But prices remained vulnerable to concerns the global economic recovery was still uncertain, with much resting on China’s ability to power growth and the skill of governments in unwinding measures taken to survive the worst of the recession.
On Monday, prices had fallen nearly 2 percent as the dollar gained and investors worried China might tighten credit further to put a brake on racing inflation -- and consequently growth.
In the short term, the risk remains that prices could fall on seasonally lower demand in the second quarter.
Royal Dutch Shell (RDSa.L) Chief Executive Peter Voser said on Tuesday oil market fundamentals remained weak in the short term but medium term demand is robust.
Naimi, who brushed off the “blip” of competing Russian crude on Tuesday, took a relaxed stance on OPEC overproduction and shared the longer view of major forecasters that China will ride to the rescue.
“The market is happy, there is balance, there are no shortages, there is enough investment going on,” he said.
OECD head Angel Gurria forecast global growth of 4 to 4.5 percent this year because “China and India are pulling very hard.”
The International Monetary Fund (IMF) expected China’s economy to expand 10 percent this year.
“When the economy recovers and the demand for oil increases, (OPEC) will be ready to increase,” Iraqi Oil Minister Hussain al-Shahristani said on Tuesday.
OPEC’s ministerial monitoring committee, which reports to the group on the market and output, said there was no need for change -- but there was a need for more compliance from members.
For a graphic showing the relationship between OPEC output cuts and the oil price, please see:
additional reporting by Alejandro Barbajosa, Simon Webb, Joe Brock and Sylvia Westhall in Vienna and Eman Goma in Kuwait; editing by William Hardy