Crude to Rise to $70-$75 by Year End, El-Badri Says (Update3)

June 4 (Bloomberg) -- Oil prices are likely to rise to between $70 and $75 a barrel by the end of this year because of expectations for an economic recovery and a weak dollar, OPEC Secretary General Abdalla el-Badri said.

The Organization of Petroleum Exporting Countries has seen a pick-up in demand from China though the global economy isn’t recovering as fast as the price of oil, he said today at an energy forum in London organized by Bloomberg LP, the parent company of Bloomberg News. Goldman Sachs Group Inc. forecast today a surge to $85 a barrel by the end of the year.

“The recession has almost bottomed out now,” el-Badri said, adding that OPEC was “not happy” with last year’s record of $147 or with prices earlier this year at $40. “There is no way but up. The world economy is recovering now but not as rapidly as the price is going up.”

Crude oil for July delivery rose as high as $67.38 a barrel today on the New York Mercantile Exchange. OPEC, responsible for 40 percent of global crude supply, decided at its most recent meeting last month to keep production steady in case new supply cuts jeopardized the economic recovery.

Output Compliance

As of last month, OPEC completed 78 percent to 80 percent of a 4.2 million barrel-a-day output reduction announced late last year. A Bloomberg survey of May production showed a rate of 78 percent, down from an estimated 90 percent in April.

While reaching full compliance isn’t technically practical, a rate of 90 percent “can be achieved,” el-Badri said. OPEC wants to reduce inventory levels to 52 days’ worth of consumption from 62 days, for which it will need to remove the remaining 900,000 barrels a day of its announced cut.

Eliminating this “overhang” will help ease the premium of long-term over short-term prices in the futures market, the secretary general said. This structure, known as contango, encourages traders to hoard inventories that can further depress prices for near-term contracts.

Supply cutbacks have left the group with idle capacity of around 7 million to 8 million barrels a day, which is unlikely to fall before the end of the year, el-Badri said.

Meeting as Scheduled

It would take a “dramatic” event for OPEC to meet before its next scheduled conference on Sept. 9, he said. The group will then next gather on Dec. 17 in Luanda, capital of Angola, which holds OPEC’s rotating presidency.

The price recovery in recent months has not changed OPEC’s plans to push back 35 of about 120 new supply projects until after 2013, as exploration and production costs have not fallen more than 8 percent, el-Badri said. The “marginal cost for alternative energy” is $70 a barrel, he said.

Additional supplies from outside the organization will be even more constrained, el-Badri said. There will be “zero” production growth from non-OPEC suppliers over the next 5 to 10 years as output in Mexico, Russia and the North Sea stagnates, he said.