Doha (Platts)--11May2010/704 am EDT/1104 GMT

Record high long positions by oil market speculators could trigger a new wave of volatility just when the outlook for the energy market has improved following the financial crisis when prices nose-dived, Hassan Qabazard, the head of OPEC's research division, said Tuesday.

Addressing a meeting of Arab oil ministers in Doha, Qabazard said economic growth of 3.5% this year would translate into average energy demand growth of 900,000 b/d, all from non-OECD countries led by Asia.

This demand growth, he said, "will be concentrated in the transport and petrochemicals sectors."

OPEC had responded to the decline in oil demand in 2009 by curbing production, Qabazard said, referring to a December 2008 agreement by the cartel to slash production by 4.2 million b/d in an effort to balance markets and prevent a further fall in oil prices, which had fallen by more than $100/barrel by the end of 2008.

"Price extremes, high or low, are not sustainable and contain within them the seeds of future volatility," he said.

Oil prices have been trading within a range of $75-$85/barrel for much of the year.

The December 2008 agreement "was successful in stemming the free-fall in prices before supporting them to a more reasonable level that exists today," Qabazard said.

"But these measures can only be truly successful with the full support of other parties in the industry." Oil market stability is a key objective for OPEC and "the outlook for oil market has continued to improve this year," he said.

But activities on the oil markets could jeopardize this stability and with it the incomes of oil-dependent economies in producing countries.

"Speculators have taken net long positions to a record high. There is understandably concern whether this could trigger a new wave of market volatility at a time when steps to regulate markets are still under discussion in several countries," he said.

"The general mood in the market has been that [current] oil prices are acceptable" and provide reasonable returns that can be ploughed back into the industry, he said. "For consumers they are affordable and are not seen as having an adverse impact on growth."

Qabazard said that while there was a "more settled air" surrounding oil markets, there was still no room for complacency.

"There is still concern about the level of public debt in OECD countries, high unemployment and the risk of a correction in China..." Qabazard said, noting that all these elements "pose a threat to market stability" and could exaggerate otherwise normal market developments.

--Kate Dourian, kate_dourian@platts.com