LONDON (Reuters) - Oil prices could reach $80-$90 a barrel by early next year, but OPEC will not increase its output until a huge amount of over-supply has been absorbed, the group’s Secretary General said on Tuesday.
OPEC officials have been nudging up their price aspirations since Saudi Arabia’s oil minister said last week an oil price of around $75 could be achieved later this year and would not undermine a tentative global economic recovery.
“The price will go to $80-$90 maybe at the beginning of 2010,” OPEC’s Abdullah al-Badri told the Reuters Global Energy Summit.
“I don’t think the price will go down... By the end of the year we’ll see $75. $80-$85 is possible — not with the demand we see at this time, but if demand picks up month after month, then maybe we’ll see this price.”
Last week, Badri said he expected to see oil at $70 to $75 a barrel by the end of this year. U.S. crude has already more than doubled from a low of $32.40 reached in December, its weakest in nearly five years, to around $68 on Tuesday.
Badri made clear the Organization of the Petroleum Exporting Countries — which has said it would reduce production by 4.2 million barrels per day (bpd) since September last year — was not ready to increase formally its output ceiling.
A drop in oil inventories in industrialized countries to around 52 days’ worth of future demand from around 62 days now would be needed for the group to consider doing so, he said.
“OPEC will move and act when they see that overhang reduced to a normal level and they see that demand is really picking up, then OPEC will move. At this time, there is no real threat to the market. There is no shortage of oil.”
Badri said the current price might contain an element of speculation, but not the alarming level that pushed prices to a record of nearly $150 in July last year.
Another factor in the rally on oil and other dollar-denominated commodity markets is the weakness of the U.S. dollar.
“One of the reasons for this high price is the dollar is weak and I think it will remain weak for the remainder of the year,” Badri said.
The 12-member producer group has consistently said what it seeks is a stable price and that a fair level for both producers and consumers is around $75, which it argues is high enough to ensure investment in new supplies.
Badri has repeatedly said the collapse in oil prices from its record last July to the lows of December has led to project delays and cancellations, including 35 delays within OPEC.
Although he has not revealed which projects were affected, he said it was still too soon for them to resume.
“When we see the price recover for six months or so, then OPEC member countries will look at these projects and start to reactivate them. You need to have at least a $70 price to review your projects,” he said.
For now, the focus is lack of demand rather than a lack of supply, which complicated OPEC’s meeting last week, which resolved to keep supplies steady.
“It was a short meeting, but a very difficult decision,” Badri said. “We see only a slight recovery coming. It is very difficult to keep production on course, not to rock the boat.
“We don’t want to give a wrong signal to the world economy.... We are seeing light at the end of the tunnel. It is not really a very bright light — it is still a dim light.”
In the event demand recovers more quickly than anticipated and any price rally runs out of control, Badri said OPEC had around seven-to-eight million bpd of unused production, which could be used to calm the market.
“Next year, if the price goes up, out of control, we have capacity,” he said.
Additional reporting by David Sheppard and Jane Grieve; editing by James Jukwey