OPEC Members Cite $60 Oil as a Target Everyone Can Live With as They Declare Support for Cutback Extension

Saudi Aramco boss believes peak demand “is not in sight.”

Saudi Aramco, which is gearing up to stage an Initial Public Offering next year and aims to get a valuation of up to $2 trillion, says that despite U.S. shale depressing the market, a rebalancing is underway and demand will continue to grow in the long term.

That was the message delivered by Amin Nasser, chief executive of Aramco, at the Columbia University Energy Summit on Friday; he added that "The future market situation will be increasingly on firmer grounds, though volatility could continue until the rebalancing takes firmer hold and inventory withdrawals assume a more consistent trend."

Nasser, who said his company's IPO is "on track," pointed out that Asia alone accounts for up to 70 percent of Aramco's exports and is still seen as a growth market; he also believes demand growth will continue to support expanded refining and marketing in the U.S.

As for peak demand, it "is not in sight," he told summit delegates.

Just as Aramco – and its home country Saudi Arabia - has a vested interest in delivering an optimistic outlook on market conditions, so too does Organization of the Petroleum Exporting Countries (OPEC) members such as Kuwait and Iraq: the former because it needs higher prices to stabilizing a troubled economy, and the latter to generate more funds to fight a war against the Islamic State, according to Fitch Ratings.

That is why all three countries were reported by the Wall Street Journal as targeting $60 per barrel as the level they want to push crude prices; this figure was stated as they and other members declared their support for an extension of the cartel's cutback initiatives to the end of this year.

However, $60 per barrel was said to cause Mohammad Barkindo, secretary general for OPEC, concern about how it would affect shale producers; but one OPEC official told the Wall Street Journal that "This level is what we think will encourage investments, but still would not encourage shale producers much to ramp up output."

While the $60 goal is nothing new, accurately predicting demand is proving harder than even many experts initially thought: for example, although earlier this week SEB calculated that global oil inventories in weekly data have dropped by 42 million barrels in the last four weeks, thus suggesting that demand is increasing, Hamza Khan, head of commodities strategy with ING, said normal seasonal draws on oil products at the end of refinery maintenance season could be creating an illusion of a tight market: "The key question is whether it's being consumed or whether it's pushed into somewhere else."