Minister wants US$70/b, warns of inventory levels

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Monday, March 16, 2009

Venezuela would like to see oil prices trend higher toward US$70/b, oil minister and president of state oil company PDVSA Rafael Ramírez said in Vienna at the 152nd OPEC meeting.

"The current price of oil, around US$40/b, is a nominal price," Ramírez said in a ministry statement, stating that the real price was closer to US$28/b.

"We need an elevated price that will allow us to continue adding production capacity," he continued.

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OPEC decided not to implement a new production cut but remains worried about inventory levels, Ramírez said.

"If inventories don't fall by May, there will be a lot more instability on oil markets," Ramírez said.

OPEC member countries have not complied with 20% of previously announced cuts, which leaves another 1Mb/d to take off the market, according to the minister.

Venezuela and Ecuador are OPEC's only Latin American members.

MARKET REACTION

Analysts largely agreed with OPEC's decision to hold off on further production cuts.

"OPEC decided that continued economic instability was a far greater risk with another crude oil production cut. Instead, OPEC has resolved to comply with strict adherence to the December 2008 record production cuts within its own membership," analyst Gianna Bern told BNamericas.

"OPEC still has another 800,000b/d that they need to cut in order to comply with their 24.9Mb/d production quota," said Bern, an energy analyst and president of Chicago-based Brookshire Advisory and Research.

Bern, meanwhile, said that inventories may be beginning to level off.

"The contango in the crude oil futures market is still there, but diminishing with continued dismal economic news," she said. "As inventory supplies in the Gulf Coast have finally begun to level off, crude oil prices have begun to stabilize in the US$40-50/b trading range."

Contango refers to the situation when crude oil prices for future delivery are higher than current prices.

"There was not a need to enact an additional cut. Right now, low crude oil prices are the only glimmer of light in an otherwise bleak economic landscape," Bern added.

OPEC is next scheduled to meet on May 28.