Saudi oil minister says no need for OPEC cuts in 2010

NO CUTS: Demand for Saudi crude is increasing, oil minister says, so no need for OPEC cuts. (Getty Images)

OPEC does not need to cut output next year, according to the latest oil supply and demand estimates, the oil minister of top exporter Saudi Arabia told Reuters on Tuesday.

Demand for Saudi crude was increasing, and this was evidence the world's economy was recovering from recession, Ali al-Naimi said in an interview on Tuesday.

"No, based on the current (demand and supply estimates), there is no need of course, right now," Naimi said ahead of the inauguration of the King Abdullah University of Science and Technology (KAUST) in Jeddah.

"But you never know, this is a moving target, it is a very active market. The world economy seems to be recovering. I hope it will recover fast and therefore it will impact demand. If demand rises of course supply has to match it... Demand for our oil is rising, and so we are -- at least I am -- convinced that economic growth is started and will continue."

Global oil inventories are above the five-year average in defiance of OPEC output curbs that have aimed to match supply with a fall in demand following the economic downturn.

Some oil market observers have said the producer group, which pumps more than a third of the world's oil, would have to cut output again next year to balance the market.

OPEC pledged to cut output by 4.2 million barrels per day (bpd) last year, and the curbs have helped the oil price recover to around $70 from a low of $32.40 in December.

At its most recent meeting earlier this month, the Organization of the Petroleum Exporting Countries agreed to leave output unchanged and Naimi brushed off concerns about high inventories, saying economic growth was driving the oil price.

Oil at between $70-$80 a barrel would bring investment in new energy supplies and prevent a future supply crunch, Naimi said. The kingdom has targeted around $75 as a fair price for both consumers and producers.

"As long as the prices are where they are, like $70 to $80, I think investments will continue... and with so much spare capacity available in the world now we foresee no shortages in the future," he said.

Naimi reiterated Saudi Arabia was pumping around 8 million bpd of oil and its output capacity was 12.5 million bpd.

As oil prices have dropped from the record of nearly $150 a barrel hit in July last year, reducing profits for energy producers, the price of new projects has also fallen because other commodities have also become cheaper and labour costs have fallen.

The estimated cost of a giant new petrochemical venture between state oil giant Saudi Aramco and US Dow Chemicals has fallen to $17bn from around $20bn, Naimi said. (Reuters)

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