Iran's Organization of Petroleum Exporting Countries governor said a continued rise in global oil inventories amidst declining crude demand could warrant further production cuts by producers, and more time is needed for oil to rise to the $70 to $100 a barrel level.
"When you see the (oil) stocks building rapidly it means there is a surplus in the market that needs to be balanced," Mohammad Ali Khatibi told Dow Jones Newswires by telephone late Monday.
"It gives you a feeling ... that the market is an oversupplied market and if the supplier wanted to balance the market, it should cut," Khatibi said.
Weakening demand in the U.S. and western Europe has pushed millions of barrels of oil into storage terminals and onto tankers offshore.
Oil inventories in the U.S., which rose an additional 6.2 million barrels in the week ending Jan. 23, have increased for seven of the last eight weeks -- almost filling tanks to capacity at Cushing, Oklahoma, the Nymex contract delivery point.
In a bid to restrain a more than $100 decline in oil prices, OPEC announced three production cuts since September, to take a total 4.2 million barrels a day of crude oil out of the market. The latest reduction of 2.2 million barrels per day -- announced at a Dec. 17 meeting in Algeria -- came into effect on Jan. 1.
"The OPEC cut was huge, but the figure for shrinking oil demand was also huge," Khatibi said, adding that in the wake of declining demand and rising inventories further cuts could be warranted.
Not Enough
"In the same situation in the past, for example in 1998, just one cut was not enough. Sometimes we need several cuts," he said, adding that a slight oil price recovery to above $40 a barrel was the result of OPEC's output reduction.
"The price would be less than this (if OPEC had not cut output). The price is between $40 and $50 a barrel with the effort of OPEC. Everyone agrees on this," Khatibi said.
On the New York Mercantile Exchange, light sweet crude for delivery in March traded at $40.52 a barrel at 0630 GMT, up 44 cents, in the Globex electronic session. Crude dropped as low as $36.94 in the last week of December, having hit a high of $147 a barrel in July.
For crude to reach a a price range of $70 to $100 a barrel, more time and an improvement in global oil demand and the world economic situation will be needed, he said.
"This is a consensus of producers and consumers that the price should be improved, but achieving this goal definitely takes time. It depends on the world economic situation, it depends on the demand side. If the demand will be improved, definitely we can achieve this goal quickly," he said.
OPEC's aim is not to create a supply shortage but to follow the direction of demand, which is "shrinking," Khatibi said.
"OPEC decides to follow the demand. It does not mean that we are going to create a shortage. OPEC has cut because the demand is shrinking. If the demand (gets) in good shape I think the decision can be changed," Khatibi said.
OPEC is scheduled to meet again in Vienna in mid-March and there's no indication that an emergency meeting may be called for before that.
"The latest decision is for mid-March, as far as I know. We have not been informed of any meeting earlier than what we decided," Khatibi said.