Algiers (Platts)--6Jan2008

OPEC President Chakib Khelil said Saturday OPEC ministers due to meet in
Vienna on February 1 would consider all options, not just price, to determine
if there is a need to increase supply but his assessment was that oil markets
were balanced and prices near $100/barrel did not reflect fundamentals 
     Khelil, speaking on the sidelines of an energy conference in Algiers,
said in his first remarks as president of the producers' club that he believed
the current price rally was likely to continue through the first quarter of
2008 before stabilizing in the second quarter.
     "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 to cool prices at
its next meeting.
     "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."
     Asked what price OPEC would prefer for the barrel, Khelil replied: "You
should know that OPEC has had a price target. At one point we had a price band
of $22-$28 per barrel but it was abandoned. What is important for OPEC is to
supply the global market's crude oil needs as enshrined in its statute."
     Khelil, who is also Algeria's oil minister, admitted that US stocks were
below the four year average but he said they were within the five-year
average.
     "The central problem now is the evolution of the economic situation in
the US and Europe because that will determine a little what will happen the
rest of the year," Khelil said, referring to the credit and banking crisis
that has hit the financial systems in both markets following the US subprime
mortgage debacle.
     "If there is really a recession, that will have an impact on demand. So
OPEC would have no interest in raising supply if we know that later on, we
will have to cut," said Khelil.
     But for now, the risk of recession is not a key factor in the oil market,
Khelil said, adding that strong demand and geopolitics were expected to keep
oil prices strong during the first quarter of the year. Demand will fall in
the second quarter, which was normal, and "prices will probably stabilize,"
the OPEC president said.
     "But it is very clear that for the rest of the year -- the third and
fourth quarters, demand will pick up," said Khelil.
     "Much depends on these parameters and also on the contribution on
non-OPEC producers, which are two years behind in bringing on additional
supply. Currently they account for 60% of the market. But there is a
possibility that they might manage to increase production this year. We will
not know before March, when we have our ordinary meeting," Khelil said.
     "So in February, we will evaluate all these possibilities. It is not just
prices that we will look at, whether it is $100, $110, $120, $130 or $50 per
barrel...what concerns us is to satisfy global demand and ensure balance
between supply and demand. That we have control over."
     He added:  "We have no control over other factors, whether it is
geopolitics, winter or speculation...now there are investments funds, which
can find nothing else to invest in so they are investing in the paper barrel
and this will have a bigger impact on price. These are very large funds that
have billions and billions of dollars and they are investing in oil and gold
... these investment funds are probably going to have much more influence on
the barrel of oil than other problems," he said.
     Khelil 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/barrel record reached on Wednesday 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 dollars, depending on estimates", he said. 
     Khelil said that high oil demand was being pushed by "China and 
India but also by the Middle East whose consumption has risen immensely".
     "When you take that into account, 100 dollars is not necessarily 
very high," he said.






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