Naimi says market sets oil price

Naimi says market sets oil price
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Platts

January 7, 2008 - Saudi Arabian oil minister Ali Naimi was quoted January 7 as saying that oil markets, not producers, determine the price of oil, in his first comments since oil futures traded above $100/b, following comments by OPEC president Chakib Khelil predicting further price rises in the first quarter.

"Prices are determined by the market," Naimi told the Saudi-owned al-Hayat newspaper on the sidelines of an energy conference in Riyadh.

This was Naimi's only comment since oil prices spiked to $100/b last January 2. The front-month light sweet crude oil futures contract in New York traded at an all-time high of $100.09/b the next day but has since fallen back. The February NYMEX contract closed at $97.91/b on January 4.

OPEC kingpin Saudi Arabia is the most influential voice within the producers' club.

Naimi's comment echoed remarks made by OPEC president Chakib Khelil, who told reporters in Algiers on Saturday that oil prices might rise further in the first quarter due to violence in Nigeria, political turmoil in Pakistan and strong demand, before stabilizing in the lower-demand second quarter, though he did not consider $100/barrel high in real terms.

He said oil prices currently a few dollars below $100/b did not reflect fundamentals of supply and demand but rather geopolitics, stock drawdowns in the US and heavy investment by funds in commodities markets.

The next OPEC meeting in Vienna would consider all these factors, not just price, before deciding whether to change its production target, said Khelil, who took over the rotating OPEC presidency on January 1.

"The recent price rally is due mainly to the violence in Nigeria, where production has been shut in, and the turmoil in Pakistan, which is considered by market players to be a geopolitical problem, and of course US stock levels, which are at their lowest in four years," Khelil said.

"Furthermore, it has been a very difficult winter not just in the US but also in Europe, so the combination of these factors led to the price rise," he said, when asked if OPEC would consider raising production.

"There is an extraordinary meeting in Vienna in February which will review the market up to February. We will assess the situation, see whether stocks have fallen further. The decision will be by consensus whether we increase or whether we keep production as is. Only the meeting will decide," said Khelil, refusing to predict what action the group might take.

Pressed further on the issue of an increase in supply, Khelil replied: "This is a question for ministers to decide in the light of market developments. There are so many parameters to consider and to determine the role of fundamentals, whether it is due to supply and demand or all other factors." But he added: "At the moment, prices do not at all reflect supply and demand...There is a balance between supply and demand."

Khelil, who is also the Algerian oil minister, later told French news agency AFP that $100/barrel "was not necessarily very high" given high demand for oil and rising production costs.

The $100/b price should be seen in real terms, taking inflation into account, he said.

The current oil price was therefore below its 1980 record of "between $102 and $110, depending on estimates," he said.

Khelil said that high oil demand was being pushed by "China and India but also by the Middle East," where he said consumption had risen immensely. "When you take that into account, $100 is not necessarily very high."