Naimi sees oil markets in balance, prices stable in 2011

Dubai (Platts)--24Jan2011/631 am EST/1131 GMT

Saudi Arabian Oil Minister Ali Naimi said Monday that he expected oil markets this year to be in balance and price stability to continue at 2010 levels, though he expressed concern at what he said was pressure exerted on prices by speculators and futures market investors.

"...the market this year will be in total equilibrium in terms of supply and demand, with an appropriate commercial stock and a spare production capacity that can be used in any unexpected, political or natural emergencies in the producing or consuming nations," Naimi told the Fifth International Competitiveness Forum organized by the Saudi Arabian General Investment Authority in Riyadh.

"Based on these facts, I expect price stability to continue at last year's rates. The only thing I am concerned about is the upward or downward pressure of speculators, analysts and future market speculators on prices away from natural market fundamentals," he added.

Naimi, however, made no mention of the recent rise in oil prices, which saw international benchmark Brent Blend rise to $99.20/barrel earlier this month, a level that International Energy Agency Executive Director Nobuo Tanaka said last week was "alarming."

The major objective of Saudi Arabia's oil policy was the supply and demand balance and the availability of enough commercial stocks to maintain uninterrupted supply to markets and oil price stability "at rates that do not adversely affect the global economy growth rate, particularly in the developing nations, while generating revenues to the producing nations, which own exhaustible resources," Naimi said.

He did not say what price level the OPEC kingpin considered fair to both producers and consumers, having said repeatedly in recent years that Saudi Arabia, home to the world's largest oil reserves, favored prices between $70 and $80/b.

A Gulf source told Platts Monday that oil prices were not expected to rise further during the second quarter because while inventories held by consuming countries had fallen, they were still above normal at 56-58 days of normal cover.

"The first quarter is over...there is no reason for the price to go up unless something happens," the source said, adding that there was no need for OPEC to consider action at this time unless there was an unexpected development that might upset market balance.

Benchmark Brent Blend front month crude oil futures were trading Monday in a range of $97.40-98.17/b.

Naimi said the world had "clearly passed the financial crisis and deep recession it experienced in 2008/09 and entered, as of last year, a stage of growth which is expected to continue this year before accelerating gradually the following years."

Economic growth will lead to a rise in demand for energy, Naimi said, citing some forecasts for energy demand growth of between 1.5 million and 1.8 million b/d, an increase of "approximately 2% compared to last year."

The increase in demand will come from Asia, particularly China and India, the Middle East and Latin America, he added.

Demand was expected to continue to decline in countries with mature economies, particularly in Western Europe and Japan, while the US might experience a "slight increase in demand as a result of its improving economy."

The new global demand trend, which began 20 years ago, is expected to continue "though at a higher pace, during the next 10 years," Naimi said.

"The year 2011 might mark an important turning point in this direction, as oil demand in the emerging economies and developing countries is nearing its level in the OECD industrialized countries and will even surpass it by 2013; a first for the history of the oil industry, noting that the industrialized countries used to amount for more than 70% of total global demand only 20 years ago," Naimi said.

On the supply side, "non-OPEC oil producing countries are expected to continue to increase their production, albeit at lower rates compared with the previous years," Naimi said. "This will give OPEC countries an opportunity to boost their supplies to the global market to meet the rising global demand." "OPEC's policy, as is well known, is to meet any increase in oil demand to maintain the supply-demand balance. It is also expected that some OPEC countries will increase their production capacities, thus maintaining OPEC's spare capacity at approximately 6 million b/d," he added.

"The kingdom's spare capacity this year will be about 4 million b/d, under normal market supply, demand and trading stock movement conditions," Naimi said.

Saudi Arabia has total production capacity of 12.5 million b/d with current production running at 8.35 million b/d, according to the latest Platts survey of OPEC's production in December.

"I am optimistic about the global oil market during this year and the coming years," Naimi said. "This market will be characterized by stability in supply and demand, and price levels."

--Kate Dourian, kate_dourian@platts.com

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