Al Naimi concerned speculation will fuel price rise

Dubai: Opec members may boost oil supply this year as demand for crude rises amid a recovery in economic growth rates near to levels last seen before the global financial crisis, Saudi Arabia's oil minister said.

Worldwide oil demand may increase as much as 1.8 million barrels a day in 2011, or two per cent from last year, Ali Al Naimi said in a speech in Riyadh yesterday.

Saudi Arabia will have spare production capacity of about four million barrels a day, he said.

"Opec's policy, as is well known, is to meet any increase in oil demand to maintain the supply-demand balance," he said.

"Some Opec countries will increase their production capacities, thus maintaining Opec's spare capacity at approximately six million barrels per day."

Crude for February erased earlier gains, slipping as much as 0.6 per cent to $88.62 (Dh325.45) a barrel in electronic trading on the New York Mercantile Exchange.

The commodity traded at $88.70 a barrel at 1.35pm in Dubai.

The International Energy Agency last week raised its 2011 global crude oil demand forecast for a fourth month as the economic recovery gathers momentum.

Worldwide oil consumption would rise by 1.4 million barrels a day, or 1.6 per cent, to 89.1 million a day, the IEA, an energy consultant to industrialised nations said in its monthly report.

Expansion

Data from Opec and IEA on oil demand levels may differ depending on the assumptions each group uses for economic expansion and for previous use.

Opec, which accounts for about 40 per cent of global supply, would need to increase exports by 300,000 barrels a day to 29.9 million a day this year to meet global demand, the IEA said.

This "call on Opec," or the difference between global demand and production in countries outside the 12-member group, is 400,000 barrels a day higher than last month's estimate.

The future

Asked whether Opec would raise output if crude prices reached $100 a barrel, Al Naimi responded: "The future is the future".

He said he was "optimistic" about global energy markets and that oil prices would be stable.

"The market this year will be in total equilibrium," Al Naimi said. "I expect stability to continue at last years' rates."

Al Naimi didn't specify at what level of demand Opec might increase production.

Saudi Arabia led Opec members in agreeing to cut oil output at the end of 2008 after crude prices slumped from a record in the wake of the global financial crisis.

Compliance

Opec's compliance with the record cuts dropped last month as the group boosted output to the highest level since December 2008, the IEA said.

The 11 members bound by quotas produced 27.15 million barrels a day last month, implying compliance of 45 per cent, according to the IEA.

Oil shipments from Opec member states to emerging economies was nearing the level of purchases made by the world's industrialised economies, with developing countries potentially surpassing their established peers by 2013, Al Naimi said. That switch in demand would mark a first in the oil industry.

Stabilise

Global oil prices are expected to continue to stabilise in 2011, Saudi Arabia's oil minister said on Monday.

He expressed his concern, however, over market speculation, which he said was driving the prices away from fundamentals.

"I expect prices to continue to be stable at last year's rates [levels]," Ali Al Naimi, Opec's most influential member, told an industry conference.

"The only thing that I'm concerned about is the pressure exerted by speculators, analysts and some investors in the futures market on prices to push them up or down away from market fundamentals. Saudi Arabia's spare oil capacity was set to be around 4 million barrels per day this year, Naimi said.

He added that he expected overall Opec's spare capacity to stay at around six million barrels per day.

Lower pace

He said that non-Opec countries were likely to continue to boost their output, but at a lower pace. "This will give Opec the opportunity to boost supplies to the global market," he said.

Experts in the market see prices picking up on the back of strong demand for oil, particularly from emerging countries, a theme that Naimi also highlighted.