Thomson Reuters Tax & Accounting News

Featuring content from Checkpoint

Back to Thomson Reuters Tax & Accounting News

Subscribe below to the Checkpoint Daily Newsstand Email Newsletter

Oil up ahead of OPEC meeting as dollar slips

LONDON (Reuters) – Oil prices rose on Tuesday as the dollar weakened and on expectations that OPEC producers would maintain their group production target at its current level and resist pressure for an increase.

The dollar fell against the euro and a basket of currencies, making oil cheaper consumers in Europe and also for holders of other currencies.

Brent crude oil for July was up 70 cents at $65.58 a barrel by 0900 GMT. U.S. crude was up 70 cents at $60.90 a barrel.

Ministers from the Organization of the Petroleum Exporting Countries (OPEC), responsible for more than a third of the world’s oil output, meet in Vienna on Friday to decide on production policy for the next six months.

The cartel has been producing up to 2 million barrels per day (bpd) more than needed this year, but analysts expect demand to pick up, helping to drain stocks and balance the market.

Saudi Arabia’s oil minister, Ali al-Naimi, has said he expects oil demand to increase in the second half of this year while supply decreases, in a sign that the kingdom’s strategy of defending market share was working.

“Demand is picking up. Good! Supply is slowing, right? That is a fact,” Naimi told reporters. “You can see that I’m not stressed, I’m happy.”

Several banks and analysts, including Morgan Stanley, have suggested that OPEC could raise its production target, acknowledging that it has been producing more than planned over the last few months.

But most investors expect no change in OPEC’s official target.

“OPEC meets on Friday and is in no mood to cut output,” said Amrita Sen, chief oil analyst at consultancy Energy Aspects.

“The gulf between the member countries remains extremely wide, and without a contribution from everyone …Saudi Arabia will not reduce production.”

The contrasting views between OPEC members are a result of differing extraction costs, with Saudi Arabia the driving force behind keeping output high in defense of market share, while Venezuela and Iran have favored cuts in defense of higher prices.

AB Bernstein said in a report Saudi Arabia had the lowest OPEC extraction costs at around $6.1 per barrel, but other OPEC countries needed higher oil prices, it said.

“Within OPEC, considering ongoing oil price levels (and) country budget spending … Venezuela, Angola and Ecuador (currency) reserves will hardly last for a year with the least expected impact on Kuwait and Qatar,” Bernstein said.

Tagged with →