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OPEC consensus on $100/barrel oil broadened by Saudi comments

Posted on January 23, 2012

LONDON -- Saudi Arabia’s endorsement of an oil price of $100 a barrel increases OPEC unity over a triple-digit price aspiration, making agreement on policy easier and adding support for the market.

Ali al-Naimi, oil minister for the world’s top oil exporter, said in an interview with CNN last week that he hoped to stabilize oil prices at “around $100” for an average of crudes worldwide.

Other members of the Organization of Petroleum Exporting Countries (OPEC) such as price hawks Iran and Venezuela have long called for prices to be at or above $100 -- but not Saudi Arabia, its largest producer and most influential member.

“All in all, all OPEC countries will be more than happy with a $100 price,” said Shokri Ghanem, the head of Libya’s OPEC delegation for many years until he defected in May 2011. “This is a change in the Saudi view.”

Brent oil prices were trading around $111 a barrel last Thursday, down from a 2011 peak of $127 and an all-time high of $147 reached in 2008. Last year’s annual average for Brent around $111 was the highest ever.

Mr. Naimi did not make clear which benchmark oil price he was referring to, mentioning in the interview US crude, which is trading above $101, and OPEC’s oil index last valued at $111.78, as well as Brent.

A source in a Gulf OPEC member-country said it was wrong to see the comments as setting a price target, adding that while Saudi Arabia hoped for oil at around $100, “no single player can dictate what the price is”.

As well as Mr. Ghanem, a current OPEC official also took the Saudi minister’s remarks as a sign of increased unity on prices within the 12-member group, which pumps more than a third of the world’s oil.

“It seems so. I haven’t seen any disagreement,” said a delegate from one of the OPEC countries with a relatively hawkish view on prices.

“It makes them more together in terms of prices,” said Paul Tossetti, an analyst at PFC Energy. “They are closer than they have ever been on the need for a high price.”

Before last Monday, Riyadh had not specified a preferred price level since it said it favored $75 a barrel in November 2008, although Mr. Naimi later said that was no longer valid.

OPEC’s hawks and doves fell out last year over the group’s response to the loss of Libyan crude during the country’s civil war.

Iran, Venezuela and African countries opposed a Saudi-led proposal to boost output at OPEC’s June 2011 meeting. The meeting collapsed without agreement, and Saudi Arabia and the Gulf Arab countries raised supplies anyway.

The group settled the argument in Saudi Arabia’s favor at a meeting in December, held in Vienna. Analysts said greater unity over prices could make it even easier for OPEC to reach consensus on policy and provide a point to rally around.

“It has broadened the consensus within OPEC, because $100 is a number that virtually no one inside OPEC could disagree with,” said Bill Farren-Price, an oil consultant at Petroleum Policy Intelligence.

“It helps solidify the newfound detente that we saw between the oil ministers in Vienna last time around. It helps OPEC to have explicit or even implicit agreement on oil prices,” he added.

At December’s talks in Vienna, OPEC adopted a supply target of 30 million barrels per day. This brought the extra oil the Gulf countries had pumped to meet the Libyan shortfall within official OPEC limits.

Mr. Naimi’s comments also acknowledge the reality that oil prices are subject to upward pressures stemming from social developments in North Africa and the Middle East, as well as industry trends.

Oil revenue needs in OPEC countries have risen sharply following announcements of increased social spending on their growing populations as they seek to counter Arab Spring unrest.

And oil industry costs are rising as companies work on more complex projects. BP Plc Chief Executive Bob Dudley said in October more people were pencilling in $90 to $100 when asked what price BP needed to make money from new ventures.

The OPEC price hawks, compared with the Gulf Arab countries, have large populations and little or no ability to earn extra dollars by pumping more oil at short notice. While the gap in their price aspirations has narrowed, it is still there.

“OPEC countries are increasingly united around higher prices, but out of necessity rather than because they share a common outlook,” said Samuel Ciszuk, a consultant at KBC Energy Economics.

“Crucially, the hawks still in general need prices to be at least $100 or even slightly more to balance their budgets, while for Saudi Arabia it is still a level of considerable comfort.” -- Reuters