Iran's OPEC governor said the Organization of Petroleum Exporting Countries will either cut production at its May 28 meeting to reduce record-high crude oil stock levels, or decide to maintain current output on expectations of an improved economic situation and a rise in demand.
"There are two options. If OPEC decides to bring the stock levels back to the five-year average, then production has to be decreased. Another option is to maintain the current (production) level and see how economic improvement will influence demand," Mohammad Ali Khatibi told Dow Jones Newswires by phone Friday.
"From a crude oil point of view, the stocks should go back to (a five-year average of 52 days of forward cover). It is currently 61 days," he said.
The number of days of forward cover indicates how much the Organization for Economic Cooperation and Development, or OECD, holds in reserves in days of average consumption.
The U.S. Energy Information Administration said Wednesday in its weekly report that crude stocks in the U.S. rose to 375.3 million barrels - the highest since September 1990.
Iran's OPEC governor said recent indicators of an improved global economic outlook could be "good news" for the oil market and spur an increase in crude demand that will cause a rise in prices.
Crude oil futures prices rose Friday to a new six-month high after the latest U.S. employment data showed the economic crisis may be bottoming out. Nymex light sweet crude oil for June delivery Friday settled up $1.92 a barrel at $58.63, the highest level since Nov. 11. ICE June North Sea Brent crude settled up 2.96%, or $1.67, at $58.14 a barrel.
If "the economic situation will be in better shape, this is good news for the oil market and it can increase (crude) demand, and with better demand there will be a rise in price," Khatibi said, adding that the onset of the summer driving season will also spur a rise in crude prices.
"With the (summer) driving season, gasoline consumption will increase. I am sure that will support the gasoline market and also crude," he said.
June RBOB gasoline futures settled up 4 cents at $1.7055 a gallon Friday, the highest price since Oct. 20. Khatibi added that OPEC member compliance to quota levels has been above expectations and higher than all past compliance levels.
The organization has announced three production cuts since September to take a total 4.2 million barrels a day of crude out of the market, in a bid to reverse an oil price slump of as much as $100 a barrel from record highs in July to below $40 a barrel late last year.
"Based on different sources, the compliance by OPEC is between 85% to 90%, which is very good for OPEC as a whole. We did not have such a record in the past, (with compliance at) about 60%," he said. "It means as a whole OPEC compliance in this period is better than what everybody was expecting," Khatibi added.