ALGIERS, 11 November 2004 — OPEC is likely to avoid changing supply quotas at a December meeting as the organization seeks to manage volatile oil prices in coming months, Algeria’s Energy and Mines Minister Chakib Khelil said yesterday.
Oil prices, which in the last two weeks have declined 15 percent from record highs above $55, are likely to hold above $30 next year as demand stays strong in China and the United States, Khelil told Reuters in an interview. “The US economy seems to continue to grow very fast and will help the world economy,” he said.
OPEC has helped ease prices by raising supply quotas three times since July 1 and producing near capacity. OPEC was unlikely to make another change at the Dec. 10 meeting, Khelil said. “I think the meeting will be more of a meeting of looking back, seeing what has happened, what are the drivers and maybe spending more time looking forward on what may happen,” he said.
Oil’s 45 percent rally this year has spurred OPEC to produce at 30 million barrels daily, the highest level in 25 years, gradually helping to rebuild low fuel inventories, and weaken prices on physical spot markets.
Over the past two weeks hedge funds have cut their net long positions in a switch to other financial markets, pushing US crude to a 7-week low, down more than $8.50 from record highs in late October.
“With elections behind us in US and problems in Suez Canal and the Gulf of Mexico settled down we should be seeing some lower prices but they may only be temporary because very soon we are going to see the impact of winter demand,” he said.
“I feel that for next year we are not going to see prices below $30 and beyond that it’s anybody’s guess,” he said.
Khelil predicted volatile prices in coming months. “We may see a yo-yo type situation. In terms of supply and demand there is no lack of supply, the market is well supplied, however a lack of spare capacity creates tension in the market,” Khelil said.
“Demand for oil, which has been exceptional this year, will continue next year but there will be some seasonal variations. The first quarter will be very strong because of the winter requirements and maybe the second quarter will be much lower.”
Khelil opposed raising OPEC’s $22-28 target price band, saying that it required a conviction that there was a real structural change in the market. Some members have pushed for an increase in the band to reflect higher prices. “I don’t think we have those types of elements to make that decision at this stage,” he said.
OPEC could do little more to stabilize prices, which depended on the international politics and economic growth in big consumers like the United States and China, he said.