OPEC will keep oil price above $90, says SocGen

Societe General report says cartel will start talking about cutting production if crude falls below $100
OPEC will keep oil price above $90, says SocGen
OPEC headquarter in Vienna. (Getty Images)
By Bloomberg
Fri 24 Jun 2011 11:56 AM

The Organisation
of Petroleum Exporting Countries will “start talking about cutting
production” if Brent crude falls below $100 a barrel, ensuring prices
won’t go lower than $90, said Societe Generale.

Brent
futures dropped the most in seven weeks yesterday and traded below $108
today after the International Energy Agency said it will release 60
million barrels of oil to offset a supply shortfall from Libya. Saudi
Arabia, the biggest OPEC producer, needs oil at $90 to $100 to balance
its budget, according to France’s third-largest bank by value.

“We would
start to become a cautious buyer of Brent below $100 and would become a
more aggressive buyer as Brent approaches $90,” Mike Wittner, Societe
Generale’s New York- based global head of oil market research, said in
an e-mailed report today.

The IEA, the
energy-security adviser to the Organization for Economic Cooperation
and Development, said it will release 2 million barrels a day over 30
days from the end of next week.

Brent crude, which last traded below
$100 a barrel on February 8, has climbed 14 percent this year as an armed
rebellion in Libya disrupted supply from the African country, also an
OPEC member.

IEA
Executive Director Nobuo Tanaka cited the loss of 132 million barrels of
Libyan output as a reason for the emergency- stockpile release.
Production fell to about 200,000 barrels a day in May from 1.4 million
in February, according to a Bloomberg News survey.

The IEA is releasing inventories because of “domestic political considerations” rather than Libya, Societe Generale said.

“Officially,
the reason is to make up for lost Libyan production and exports - but
we don’t believe it,” Wittner said. “Lower oil prices may help the
faltering economic recovery in the US and Europe. The sales of
strategic reserves will also earn some cash for countries that have
budgetary issues.”

The IEA’s
announcement comes two weeks after OPEC failed to agree to increase
output quotas at a meeting in Vienna.

Saudi Arabia’s Oil Minister Ali
al-Naimi pledged to supply as much as needed to meet demand and
state-owned Saudi Arabian Oil Company has found buyers in India, China and
Japan for extra cargoes, according to people with knowledge of the
sales.

“The Saudis
could respond to the IEA release by increasing output less than they’ve
announced,” Wittner said. “Be alert for any reaction from Saudi Arabia.
This could be critical.”

OPEC is scheduled to meet December 14 in Vienna. The group’s 12 members pump around 40 percent of the world’s crude.

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