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Tue 25 Jan 2011 04:15 PM

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Merrill Lynch says OPEC should boost oil production

OPEC needs to raise production rates by 300,000 barrels a day to check a further rise in oil prices, bank says

Merrill Lynch says OPEC should boost oil production
(Images: Bloomberg)
Merrill Lynch says OPEC should boost oil production
(Images: Bloomberg)

The Organisation of Petroleum Exporting Countries should
increase oil supplies to prevent prices threatening the global recovery,
according to Bank of America Merrill Lynch.

OPEC needs to raise production rates by 300,000 barrels a
day to check a further rise in oil prices, which climbed to a 27-month high of
$92.58 a barrel on January 3, the bank said in a report  on Tuesday. There is
a “substantial chance” crude futures will advance to $115 a barrel in the next
12 months, a level that if sustained could harm economic growth, Merrill said.

Saudi Arabian Oil Minister Ali Al Naimi signaled yesterday
that OPEC, responsible for 40 percent of global crude output, may bolster
exports this year to satisfy growing consumption in China, India and the Middle
East. Crude futures traded around $87 a barrel in New York today.

“It’s very good news that OPEC has finally reacted to the
rise in oil prices, I think it’s going to keep prices a bit more contained,”
Francisco Blanch, Merrill’s head of commodities research, said in an interview
on Bloomberg television’s “On the Move” with Francine Lacqua.

Global oil demand will be “robust” this year and next,
advancing by 1.5 million barrels a day in 2011, according to Merrill. The rally
in futures from $75 a barrel onwards has been driven by rising consumption
combined with supply restraint by OPEC, rather than financial speculation,
Blanch said.

“OPEC production has been declining for the past six months,
from the Greek crisis onwards,” Blanch said.

The organization, which has about 6 million barrels of daily
surplus capacity following the 2008 economic crisis, will next meet to review
production quotas in June. While the 11 members bound by the limits are
exceeding their target of 24.845 million barrels a day, output from those
nations is little changed versus levels six months ago, at about 26.8 million
barrels a day, Bloomberg data shows.

Spare capacity held by the group, and the prospect of new
supplies from Iraq, will likely stop oil prices surging beyond $115 a barrel, Merrill
said.

Goldman Sachs Group Inc. said yesterday that rising global
inventories suggest OPEC is already tapping into its spare capacity, earlier
than the bank had considered necessary. This may indicate that the market’s
recovery has gained momentum, and that prices are entering a “structural bull
market,” the bank said in a report.

 

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