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OPEC must wait and see, mkt oversupplied -delegate

Prices are already well above $80.

October 7, 2010 1:38 by

OPEC needs to adopt a “wait and see” strategy, and pumping extra oil in the face of a rising oil market would only add to levels of excessive supply, an OPEC delegate said on Thursday.

U.S. crude prices have this week climbed to their highest levels since May, driven in part by the weakness of the U.S. dollar . Many analysts predict dollar weakness will continue in anticipation of economic stimulus.

Prices are already well above $80, at the top of a range of around $70-$85 that the market has held for around a year.

“It’s true that we have seen the price of oil jump to $80, but prices over the past few months have been so volatile, so I don’t expect the price to stay at $80,” the OPEC delegate told Reuters on condition on anonymity.

“It might increase by $1-$2 in the coming weeks, but then it should drop again because the price we are seeing is not based on fundamentals. The market is over supplied, and if Gulf countries decide to pump more now, it won’t be absorbed by the market.”

Fuel inventories in the United States, the world’s biggest oil consumer, have this year climbed to record levels, but could retreat depending on the severity of the northern hemisphere winter.

OPEC may review market fundamentals once the impact of winter demand is clear, but for now economic weakness could curb fuel consumption and leave supplies ample, the delegate said.

“Perhaps a very cold winter would be a reason to increase supply, but at this point we’ll just have to wait and see. We already have an indication that Europe’s and Japan’s economies were not doing so well in Q3, and I don’t expect a fast recovery for them.”

The Organization of the Petroleum Exporting Countries meets in Vienna next week, when it is widely expected to leave existing output policy intact, although it could discuss levels of compliance with production curbs.

(reporting by Amena Bakr, editing by Jane Baird)

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