Algeria's Khelil sees price above $30 into 2005

Algeria's Khelil sees price above $30 into 2005;

OPEC to meet Sep 15

Algerian oil minister Chakib Khelil said Aug 29 that he expected oil prices to stay above $30/bbl until early 2005 because of what he described as a very tight margin between supply and demand. "The growth in oil demand, which has been exceptional this year at 2.4-mil b/d compared to an average 1.5-mil b/d, will continue and this tension between demand and supply will persist with the approach of (the northern hemisphere) winter," Khelil said as quoted by official news agency APS. "This situation will keep prices high at levels above $30/bbl," he said."We have to expect that prices will remain above the OPEC band of $22-28/bbl at least until early 2005," he added.

Khelil attributed the high prices to economic growth of 11% in China, higher Japanese crude oil imports and strong demand from Europe, particularly France.

OPEC's basket of seven crudes stood at $39.05/bbl Aug 27. Apart from dipping below $28/bbl on two separate days, the basket has remained above OPEC's stated target range of $22-28/bbl since Nov 7, 2003. "At the moment, there is a very tense equilibrium between supply and demand as this demand growth has led global producers, including OPEC, to put all available production on to markets," Khelil said. "So the least tension on the market which might affect supply, such as, for example, sabotage attacks in Iraq or a fire in a refinery, will have immediate repercussions on the price of oil. This tension is used by speculators, which have added $7-9 to the price of a barrel of crude oil."

Khelil said the recent rise in crude oil prices, which in mid-August came close to $50/bbl for New York light crude oil futures, has not had an impact on world economic growth. "This (price) increase has had no impact on world economic growth or on inflation...For the Europeans, the impact is minimal because the dollar is devalued against the euro."

OPEC ministers are due to meet Sep 15 in Vienna to discuss output policy but their options are limited given that all but a handful of the 11 members are pumping at maximum capacity already. The 11 members of the producer group, including Iraq, pumped an average 29.57-mil b/d in July. Excluding Iraq, the ten members bound by quotas produced an average 27.574-mil b/d, 2-mil b/d in excess of the 25.5-mil b/d July ceiling and more than 1.5-mil b/d in excess of the current 26-mil b/d ceiling which came into effect Aug 1.

Non-OPEC power Russia, the world's second biggest producer after OPEC kingpin Saudi Arabia, will be attending the OPEC meeting in Vienna as an observer. Russian oil minister Viktor Khristenko said Aug 30 his country remained committed to an ongoing dialogue with OPEC. In a letter to OPEC President Yusgiantoro Purnomo of Indonesia he said: "This useful dialogue really enhances any form of cooperation between Russia and OPEC and also contact between Russian companies and all leading oil exporters."

The letter went on: "The focus of these discussions remains the stability and predictability of world oil markets, including a fair crude oil price." Russia shares "OPEC's concern about factors negatively impacting on global demand and prices," he said. A Russian deputy minister of energy will participate in the next OPEC meeting, Khristenko said, without naming any specific official.

OPEC, which has argued that it cannot act alone in bringing prices down as it represents only 35% of global supply, has often solicited the help of Russia and other producers outside OPEC, usually when it needs them to bring down production at a time of low prices. Russia has ramped up its oil production and in July ran almost neck-and-neck with Saudi Arabia's 9.3-mil b/d although Russian overseas oil exports are far lower.

OPEC's Purnomo, who Aug 3 led the market to bolt higher when he said OPEC could not bring on extra production at short notice, told reporters in Jakarta Sunday producers hold 1-mil to 1.5-mil b/d of spare capacity.

OPEC members have plans in place to raise production capacity by around 1-mil b/d towards the end of this year and into 2005, Purnomo said. Other capacity expansion plans will be undertaken soon, he said. This capacity, however, would typically need 18 months to come online, he said. Meanwhile, the fact that the OPEC-10 are producing above the agreed ceiling should not be seen as a violation of its production agreement, but "as a positive response by our members to the present volatile market situation," Purnomo said.

Doubts about the true extend of OPEC's production capacity as well as uncertainty about Iraqi supply have kept a floor under crude oil prices in recent months. Market volatility has been fed by erratic supplies from Iraq, where exports from southern oil ports have been disrupted in recent weeks by persistent acts of sabotage against southern oil pipelines and oil sales form the north have just resumed at a very low rate.

Saudi Arabia is among the countries that will benefit most from high oil prices given its high production. Finance Minister Ibrahim al-Assaf was quoted Aug 29 as saying the Saudi government had agreed to use part of an expected budget surplus arising from high oil prices to repay part of the public debt estimated at Saudi Riyal 660-bil ($178-bil). In an interview with the Saudi newspaper al-Eqtesadiah, Assaf said it was too early to give an estimate of oil revenues for the year though he confirmed they would be higher than budget estimates.

The Saudi-American Bank, or SAMBA, said in its August 2004 report that a barrel of Saudi oil will average $31.50/bbl for the year against a price of $19/bbl Riyadh is believed to have used to determine its fiscal budget.

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