RIYADH – The jump in oil prices has been supported by stronger-than-expected demand growth and a slowdown in crude supply, and is likely to continue into the second half of this year, a senior Gulf OPEC delegate said on Wednesday.
Some OPEC members are trying to bring major non-OPEC producers such as Russia on board in cutting supplies, as the Organization of the Petroleum Exporting Countries is unlikely to curb output alone when it meets on June 5 without the participation of non-OPEC countries, the delegate said.
A rally driven by Middle East tensions and signs the supply glut could ease pushed Brent crude to a 2015 high of $69.63 a barrel on Wednesday, up from $45 in January. Oil prices more than halved last year after reaching $115 a barrel in June.
“The market is firming up and this will continue. Demand is much, much stronger than anticipated,” the delegate told Reuters.
“There are clear signs and information about growth in demand and slower supply from the high cost and marginal producers.”
The comments indicate that core Gulf OPEC members are not wavering in their strategy to focus on market share rather than cutting output alone, suggesting big policy changes are unlikely at the June meeting unless non-OPEC producers change their stance.
Last year’s oil-price collapse accelerated after OPEC refused to prop up prices. That shift in policy was driven by top exporter Saudi Arabia and supported by Gulf states.
Since then, a drop in U.S. drilling activity has raised expectations of a slowdown in supply growth. The Gulf delegate said lower supplies from producers within OPEC was also helping to support prices.
“The hope for Libya coming back to the market is not there anymore. Expectations about a quick return of Iran is also not there and Iraq’s production is not as high as expected before.”
Lower prices might have stimulated demand and the global market needs at least an extra 4 million barrels a day for this year and next – of which 3 million bpd is to offset natural output decline and 1 million to meet demand growth, he said.
With prices rising, OPEC delegates told Reuters on Tuesday the group was set to maintain current production levels. The Gulf delegate said it was too early to say because of the effort to include others from outside OPEC in any output cut.
”There is an attempt to bring major non-OPEC producers to the table. But if they don’t cut, OPEC is unlikely to cut alone. It has to be a real and clear commitment and with numbers,” he said.
He did not say which countries, but Algeria said in March it was seeking more co-operation among exporters to boost prices, while Venezuela has been involved in previous attempts such as on the sidelines of OPEC’s last meeting.
The Gulf delegate said despite crude inventories being on the high side, they are still within the five-year average. “There is no overhang, there is no floating oil looking for a market,” he said.
(Reporting by Rania El Gamal in Riyadh; Editing by Alex Lawler and David Evans)
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