OPEC may need to cut output again if there is insufficient demand for its crude, a senior official has said.
OPEC official warns of more cuts in output
OPEC may need to cut output again if there is insufficient demand for its crude, a senior official for the group controlling 40 per cent of global oil supplies said. The warning came less than a week after the group's secretariat forecast that demand for OPEC crude would fall next year for the third year in a row. "I think OPEC's objective is to satisfy demand in the world market and to meet any real demand," the Algerian energy minister, Chakib Khelil, told reporters in Milan.
"It will cut only if demand is destroyed or it disappears in the market. If we see demand does not exist in the market in September, we will have to cut." Last week, OPEC predicted it would need to supply 28.1 million barrels per day (bpd) of crude to satisfy world demand, down from an average of 28.5 million bpd expected this year. That would bring the call on OPEC crude to nearly 10 per cent below its peak in 2007 of 31.2 million bpd.
The group is due to meet on Sept 9 to review the state of the international oil market and decide on further action. It has already pledged to reduce production by a record 4.2 million bpd in a series of cuts announced late last year. At its most disciplined this spring, OPEC delivered an estimated 80 per cent of its promised cuts. But by the group's latest estimate, compliance slipped to 72 per cent last month, even as oil demand remained subdued at the height of the US summer driving season.
In developed countries, oil stocks reached the equivalent of 62.5 days of forward cover at the end of May, according to the International Energy Agency. Mr Khelil, who held the rotating OPEC presidency last year, said he expected stocks would fall to a "comfortable" 52 days of future demand next year. For now, he said, the oil market was not reflecting fundamentals of supply and demand, and a rally that took crude to a peak above US$73 a barrel late last month was driven by expectations that the global economy would soon rebound.
In New York, crude rose above $64 yesterday, recovering from its latest dip to below $58 a barrel earlier this month. Rising equity markets and a rebound in US housing starts helped propel prices higher, despite a further build-up in US petrol stocks. Mr Khelil predicted crude would trade between $65 and $70 for the rest of this year, but could rise to $90 next year, once excess supplies have been absorbed.
"We know prices are going to reach their equilibrium level with the cut in the stocks," he said. "Once the economy picks up, we are going to see prices converge to the equilibrium price of $90." Algeria is the third-smallest oil producer among OPEC's 12 members. Mr Khelil said it was pumping in line with its implied output target of 1.2 million bpd. * with Reuters @Email:email@example.com