Saudi Arabia to check oil rally in 2011 – BofA Merrill Lynch

Saudi Arabia, the world’s largest crude exporter, will lead OPEC to increase
production next year, avoiding a surge in oil prices that could put global
economic recovery at risk, Bank of America Merrill Lynch said.

Oil prices are
experiencing steady rising pressures and that puts the Organisation of
Petroleum Exporting Countries in a position to choose between allowing further
increases or “show its might by keeping prices steady,” said Francisco Blanch,
head of global commodities research at Merrill Lynch.

New York-traded crude only stayed above $100 a barrel for about
six months in 2008 “before the world economy collapsed into the worst crisis
since the 1930s,” he said.

“We are more inclined to
believe that Saudi Arabia will act responsibly and encourage OPEC members to
increase output early next year,” Blanch said in an e-mail.

OPEC, supplier of about 40
percent of the world’s oil, agreed on Saturday not to alter production quotas,
which remain unchanged since late 2008. Supply and demand are “in balance,” and
$70 to $80 is “a good price”, Saudi Arabian Oil Minister Ali Al Naimi said at
the group’s meeting in Quito, Ecuador.

Crude inventories are
drawing back to their five-year averages very rapidly and global demand
continues to grow at a fast pace, “encouraged by negative real interest rates,”
Blanch said. “Allowing oil prices to continue to rise unchecked from the
current levels is a dangerous game,” he said.

Oil prices jumped to the
highest level since October 2008 last week on cold-weather forecasts for the US
and Europe, and speculation the US may extend stimulus measures, causing the
dollar to weaken. A declining dollar boosts the appeal of commodities as an
alternative investment.

Crude will rise to $100
per barrel next year, Venezuelan energy and oil minister Rafael Ramirez said on
Saturday, adding that this level would be “fair” for both producers and
consumers, making up for the “the dollar’s weakness.”