SOUURCE .: FT.COM

Saudi minister sees oil demand rising

By Javier Blas in Vienna

Published: May 27 2009 09:02 | Last updated: May 27 2009 09:02

Global oil demand is picking up, supported by higher consumption in China, driving oil prices higher, Ali Naimi, Saudi Arabia’s oil minister, said on Wednesday ahead of Thursday’s

in Vienna.

Mr Naimi added that Opec did not need to cut its production, arguing that the cartel would "stay its course". Opec, which produces about 40 per cent of the world’s oil, has reduced sharply its production since September to combat the decline in oil prices.

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Mr Naimi’s comments come as many traders in the physical oil market are far less optimistic, pointing to still weak demand outside Asia and record high inventories. The

the western countries’ oil watchdog, has forecast that oil consumption will contract this year by 2.6m barrels a day, the steepest drop since 1981.

Mr Naimi conceded, nonetheless, that all the increase in oil prices was "not purely fundamental", suggesting that speculative money was also a factor driving prices.

Opec has announced three major production cuts since September, totalling 4.2m b/d – about 5 per cent of global oil demand – in an effort to shore up prices. The cartel has delivered about 80 per cent of the promised cut.

For Opec and Saudi Arabia, however, this success does not mean that the war is over. The cartel’s economists in Vienna see the price recovery as shaky, "due more to market sentiment than fundamentals", and are urging ministers to be cautious. "Considerable risks remain as oil market fundamentals are far from balanced due to the persistent contraction in demand and growing supply overhang," Opec said in a report published ahead of the meeting.

The Financial Times Limited 2009