Opec hopes for further oil price recovery despite glut

[VIENNA] Angola's oil minister said on Tuesday that US$80 per barrel may be right for crude, joining a chorus of Opec officials and delegates hoping for a further price recovery in months to come despite a global glut.

"I would like the price (to) go up, but it is not easy," Jose Botelho de Vasconcelos told reporters.

Opec meets on Friday and is widely expected to maintain its production policy. Last November, Opec refused to cut output and chose instead to defend market share, adding to the supply surplus arising from booming US oil output.

The decision prompted a crash in oil prices to as low as US$46 per barrel in January, although crude has recovered to US$65 in recent weeks on hopes of a slowdown in US output growth.

On Monday, Saudi Arabia's oil minister Ali al-Naimi said he saw supply thinning and demand improving although he added that it could take time for the markets to rebalance as supply was still seriously exceeding consumption.

Mr Naimi gave no oil price outlook. However, several Opec officials who asked not to be identified told Reuters they saw crude rising to US$70-80 a barrel in coming months and 2016.

In the United States, the upcoming driving season would encourage a further increase in demand, one of the officials said.

The message will please some of the poorer Opec members who suffered badly from the price crash and a drive by wealthy Gulf Opec countries to embark on a market-share battle with non-Opec producers.

But higher prices might also throw a lifeline to the high-cost producers - some US oil firms have said they would start drilling actively again if crude went above US$60 per barrel.

"What has helped clean up the market somewhat is demand strength, which has surprised everyone including Opec, together with commercial and SPR (strategic petroleum reserve) stockpiling by China," analysts from Energy Aspects said in a note on Tuesday.

"But China's storage needs are ultimately finite, and unlikely to last in the same scale much beyond 2016 ... So, for Saudi Arabia's strategy to work, prices and expectations of future prices cannot rise too quickly, as that could reverse a lot of the work already in motion," it added.

Brent crude oil for July was up 40 cents at US$65.29 a barrel by 1315 GMT.

Some of the poorer Opec members, including Venezuela, had hoped to persuade the group to cut output by bringing non-Opec on board. However, non-members such as Russia have shown little willingness to coordinate their energy policies with the cartel, meaning the dialogue has all but died down in recent weeks.

On Tuesday, Venezuela's oil minister Asdrubal Chavez issued a statement calling for the establishment of a technical working group between all producers.

No special meeting between Saudi Arabia and Russia is planned for this week, although Russian energy minister Alexander Novak is due to attend an Opec seminar on June 3.

"It is unrealistic to ask countries to shut in the lowest-cost production in the world so that the high-cost production can stay, so what we are seeing is just natural economics," the head of oil major BP, Bob Dudley, said on Tuesday when asked whether Opec would cut output at its meeting.

REUTERS