Eyes On OPEC With Oil Above $70-$80 Range

Crude oil prices continue to hold 17-month highs and exceed OPEC's comfort zone, raising expectations that the group soon may push more oil into the market.

Shokri Ghanem , Libya 's top oil official, told Zaywa Dow Jones said he expects crude to hit $90 a barrel--at least temporarily--as early as next week, as economic recovery increases demand and trims inventories.

Still, Ghanem, a veteran official of the Organization of Petroleum Exporting Countries, doesn't see the group convening emergency talks to consider an official increase in oil production to cap prices. OPEC officials, while agreeing to keep output restraints in place, said in mid-March that crude prices hovering in a $70-$80 range were "perfect" and pledged not to review production policy until October.

The recent price run to a 17-month high above $87 a barrel may be fleeting. "There is no guarantee that this trend will continue for more than a week or two," Ghanem said.

While Libya joins Qatar in eschewing the need for formal OPEC action, oil prices above $85 a barrel this week may bring nearer the day that Saudi Arabia increases its world-leading level of oil exports to cool down prices outside of a formal restructuring of the group's output policy.

The Saudis have long said they won't deny refiners oil, and latest U.S. data show a surprising jump in crude-oil use. In the week ended April 2, refiners increased crude processing rates to a six-month high of 14.6 million barrels a day, according to the Energy Information Administration. In its short-term energy outlook released Tuesday, the EIA said it expects April crude runs to average less than 14.3 million barrels a day, a 15-year low for the month.

But the higher crude processing rate was surpassed by a 500,000-barrels-a-day rise in imports, to 9.56 million barrels a day, the most since mid-September. That led to a two-million-barrel rise in crude oil inventories, to 356.2 million barrels, the highest level since mid-June, and kept stocks well above the five-year average for this time of year.

U.S. crude stocks have gained 9%, or 29.5 million barrels, in the past 10 weeks, a faster-than-normal rate. But that hasn't stopped crude prices from rising by more than 15%, or $11 a barrel, in that time. Front-month May-delivery crude on the New York Mercantile Exchange settled 1.1%, or 96 cents, lower on Wednesday, at $85.88 a barrel, in the first drop after rising by $6.84 a barrel in the prior six days.

"Interestingly, the [EIA] stats could have triggered more profit-taking, but didn't," said Michael Wittner, global head of oil research at Societe Generale in London .

Gasoline stocks fell by 2.5 million barrels, the lowest level since Jan. 1, but remain near 17-year highs for this time of year, while four-week demand topped nine million barrels a day for the first time since Dec. 25. Apparent demand strength in the latest week may be tied to movement of winter-grade gasoline out of storage and movements of fuel through the supply chain ahead of the Easter holiday, analysts said. The EIA sees only a modest increase in demand for the most widely used oil product in the world's biggest energy consumer, with gasoline use in the spring-summer driving season up just 45,000 barrels a day from a year ago, to less than 9.2 million barrels a day.

(David Bird, senior energy correspondent for Dow Jones Newswires, has covered global oil markets for more than 20 years. He can be reached at 1-212-416-2141 or by e-mail: [email protected]).