May 11, 2009 / 12:17 PM / 11 years ago

INTERVIEW-OPEC faces uphill struggle to get $75 a barrel

* Some demand permanently destroyed by last year’s rally

* Oil prices could stay subdued

* Strain will tell on some OPEC members

By Barbara Lewis

LONDON, May 11 (Reuters) - The OPEC members most dependent on costly oil face a long struggle as some demand has gone for good and a target of around $75 a barrel is a distant dream, the executive director of the Centre for Global Energy Studies said.

Fadhil Chalabi, who was previously a senior official in the Iraqi oil ministry and in the Organization of the Petroleum Exporting Countries, said last year’s record prices of nearly $150 meant consumer countries were changing their habits.

“One thing is certain, when the price went to $147.27 that created a shock among consumers. It made them feel they had to make economies and increase efficiency,” he told Reuters in an interview.

“Demand for its (OPEC’s) oil has been falling, especially in OECD countries ... I believe that even after the recession, oil demand will be weak, except in China and India.”

At the group’s last meeting in March, OPEC left its output ceiling unchanged, even though demand was falling and inventories were rising.

It said it would limit its action to improving compliance with existing output curbs to help moderate prices and give the global economy a chance to recover from the deepest economic downturn in decades.

Eventually, however, more expensive oil of around $75 would be needed to spur investment in new production.

“I believe that’s just a dream. $75 is for OPEC the fair price. It can’t be achieved,” said Chalabi.

CURRENT PRICE A BIGGER PROBLEM FOR SOME

The price of U.S. crude CLc1 has recovered from a low of $32.40 hit in December, its weakest since early 2004, to a six-month high of $58.75 last week.

Chalabi said the current price, which early on Monday eased towards $57, was acceptable for Gulf states, but a problem for some of OPEC’s countries with big social spending plans.

“OPEC is facing a dilemma because these countries have generated requirements which are increasing over time,” he said.

“Countries like Iran, Venezuela ... are in difficulties.”

For a factbox on analyst assessments of the prices OPEC countries need to balance their budgets, please click on [ID:nLG686557]

Ahead of OPEC’s next meeting on May 28, the Venezuelan oil minister and Iran’s OPEC governor have raised the possibility of further action to support the price. [ID:nL7987850]

The group is faced with huge levels of inventory, both onshore and on vessels floating at sea.

Stockpiles of crude in the world’s biggest consumer the United States are at their highest for 19 years and floating storage has been estimated at well over 100 million barrels, while demand has shrunk in response to economic slowdown.

Chalabi worked as oil undersecretary in the Iraqi oil ministry and then, for OPEC, he was deputy secretary general and acting secretary general.

In 1989, he left OPEC to lead the CGES, a not-for-profit energy research institute set up by former Saudi Oil Minister Sheikh Ahmed Zaki Yamani and based in a grand building opposite London’s Hyde Park.

Chalabi’s years at OPEC coincided with price surges and crashes and a tense debate between the so-called hawks, who sought to drive the price higher to maximise income, and the moderates, or doves, led by Yamani, who believed too high an oil price would destroy demand and deprive OPEC of market-share.

The debate is very much alive, although competition from non-OPEC oil is less pressing as output from non-OPEC fields has stagnated and OPEC’s output discipline has helped to drive up prices from last December’s lows.

“He (Yamani) was more realistic than the others,” said Chalabi. “He knew that increasing prices too much would make consumers reduce consumption. He knew that demand for OPEC oil would fall and this is what happened.”

Chalabi has summed up his OPEC days in a book on “Oil and OPEC Myths” expected to be published later this year.

Editing by Keiron Henderson

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