CAIRO (Reuters) – Saudi Arabia on Saturday cited $75 a barrel as a “fair price” for oil, the first time in years that the world’s biggest exporter has identified a target for crude prices.
Saudi Oil Minister Ali al-Naimi said oil prices needed to return to $75 to keep the more expensive new projects at the margins of world supply on track. His comments may come as a relief to consumer nations fearful of a return to $100-plus oil. U.S. crude was valued at $55 late on Friday.
“There is a good logic for $75 a barrel,” Saudi Oil Minister Ali al-Naimi, OPEC’s most influential voice, told reporters in Cairo, where the producer cartel was meeting.
“You know why? Because I believe $75 is the price for the marginal producer. If the world needs supply from all sources, we need to protect the price for them. I think $75 is a fair price,” he said.
Saudi King Abdullah announced $75 as a fair price in an interview with Kuwaiti newspaper Al-Seyassah.
Naimi’s comments stopped far short of suggesting OPEC adopt a new formal price target to guide policy. But the unexpected break from his customary refusal to cite any sort of preferred price will give markets a new reference point when world oil demand recovers from the current recessionary slump.
For the time being $75 is out of reach.
Without tougher cartel action following two rounds of output curbs that have failed to rally prices, some OPEC delegates question the strategy for getting back to $75.
“It’s fine to have $75 as a price target, but what is the strategy they are proposing to get to $75? We need to take the excess production from the market to balance between supply and demand,” a senior OPEC delegate from outside the Gulf said.
But the price drew praise from a chorus of other ministers.
“Yes we would be very happy with that,” said Nigerian Oil Minister Odein Ajumogobia. His Angolan counterpart said $60 to $70 was good, while Iraq’s minister put $75 as a minimum.
NOT SINCE $22-$28
OPEC has been careful to avoid setting any fresh oil price goals ever since the $22 to $28 band it used successfully in the first part of this decade was made obsolete by oil’s surge from $30 in 2003 to a record $147 a barrel in July.
Saudi and other oil ministers have said repeatedly that their primary concern is balancing supply with demand, and that they have little control over the speculators they blamed for the explosive rise in oil prices.
That six-year rally raised concerns in OPEC about the destruction to long-term demand, but the cartel — pumping flat out — was powerless to halt it, making any effort to set a more reasonable price target meaningless at the time.
Now that prices have fallen by nearly two-thirds, to Friday’s $55, OPEC may be in a position to regain more control over the market — once again putting the issue of price targeting back on the agenda.
And while $75 a barrel is broadly in line with what many analysts say is the cost of marginal oil production in new, higher-cost frontiers like Canada’s oil sands, it may not win total support within OPEC.
Venezuela will need a price of at least $100 a barrel next year in order to balance its external accounts, while Iran will need at least $86, according to consultants PFC Energy.
Even OPEC delegates said it would likely take some time for oil to recover the ground it has lost in recent months as traders wait to see the depth of a global recession that is already taking an unexpectedly severe toll on oil demand.
“In the short-term it is going to be difficult to get to $75. Maybe in the second quarter of next year. Too many factors are driving the market down now,” an OPEC delegate said.