VIENNA (Reuters) - OPEC ministers set their sights on oil prices above $70 a barrel as they gathered for talks in Vienna, but they were expected to hold output steady and rely instead on economic recovery to push the market up.
Saudi Arabian Oil Minister Ali al-Naimi said on Wednesday the world was ready to cope with oil at $75-$80 a barrel, the price range the leading oil exporter considers enough to sustain energy investment for the long term.
He said it could be reached before the end of this year.
Previously, Saudi Arabia signaled it could live with oil around $50 to help nurse the economy back to health.
Oil has already climbed from a low of $32.40 last December to six-month highs above $63 a barrel on Wednesday.
“The price rise is a function of optimism better things are coming in the future,” Naimi told reporters.
“We see offshoots of recovery,” he added. “There are a lot of positives in what I say because I am seeing a recovery.”
Representing the world’s biggest fuel consumer, the U.S. government’s Energy Information Administration said too high an oil price could damage a fragile economy.
“I certainly would think that we are still in some pretty thick economic woods and that it would make sense to not push things with respect to the oil market,” Howard Gruenspecht, acting head of the EIA, said on Wednesday.
“Keeping oil markets well supplied is pretty important.”
U.S. President Barack Obama and Saudi King Abdullah were expected to discuss oil prices at a meeting next week in Riyadh.
Naimi said Thursday’s meeting of the Organization of the Petroleum Exporting Countries in Vienna did not need to change the group’s output policy.
Saudi Arabia has always been regarded as a moderate and ally of the United States. Venezuela, by contrast, which has big social spending plans to finance, has typically been among the first to seek higher prices.
On arriving in Vienna on Wednesday, Venezuelan Oil Minister Rafael Ramirez said he hoped oil would reach $75 in the fourth quarter, but was concerned about “very, very high” levels of inventory.
He did not expect OPEC to change its supply targets, but said it should focus on stronger output discipline.
When OPEC last met in March, oil was below $50.
Citing the need to restore the economy, which in turn would boost oil demand, the group then called only for tighter adherence to existing output curbs, rather than making new ones.
Since September last year, OPEC has lowered output by 4.2 million barrels per day (bpd) and has implemented around 80 percent of the promised cuts.
The historically high compliance has helped to drive the oil price rally, which has also been sustained by expectations across financial markets that the worst is over economically.
Algerian Energy and Mines Minister Chakib Khelil predicted oil prices would be around $60-$65 by the end of the year, rising to $65-$70 next year and said fundamentals of supply and demand did not justify the current price.
“Normally we shouldn’t have these kind of prices, but we have them so we are happy with them and I hope they will continue going up,” he said.
Some analysts said Naimi could be better placed than many to gather evidence of a recovery in fuel demand.
“I think Naimi’s comments are very significant indeed,” said Mike Wittner of Societe Generale.
“Nobody on the planet sells more crude to more refineries than Saudi Aramco. So when Ali al-Naimi says that he is seeing demand picking up in Asia, Latin America, and the Middle East, you have to believe him because he has the facts.”
Provided energy demand indeed recovers, Naimi said oil inventories would shrink back to the equivalent of 52-54 days of forward cover, a measure closely monitored by OPEC.
The International Energy Agency, which represents consumer countries, said in a report this month oil inventories in developed countries had risen to the equivalent of 62.4 days of forward cover, the most since 1993.
While stating fundamentals are bearish in the near term, the IEA has also argued any recovery in demand could be accompanied by a rally back to the record levels of nearly $150 hit last year because cheaper oil has stymied investment in new supply.
Naimi too has said that is a risk and the difficulty was to keep prices in a range, fair to producers, but that does not destroy demand.
“That is the biggest challenge,” he said when asked how to contain any price rise. “It’s very difficult. There are too many players in the market. It’s impossible with so many players.”
additional reporting by Simon Webb, Alex Lawler and Sylvia Westall; Writing by Barbara Lewis; Editing by Sue Thomas