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BRUSSELS (Dow Jones)–A rate hike by the U.S. Federal Reserve will lower crude
prices as financial speculators quit the commodity in favor of alternative
assets, according to the secretary general of OPEC, with the producer group
unlikely to fret if prices fall back to levels that reflect the fundamentals of
oil - conceivably below $100 a barrel.

In an interview at the first Dow Jones Energy Expert event held with an audience
of bankers, investors and analysts earlier this week, OPEC’s Secretary General
Abdalla Salem el-Badri said he wasn’t concerned that there would be a sudden
deflation in current oil prices, pumped up by a wave of money from financial
institutions, pension and hedge funds and retail investors.

A weaker greenback was cited as a factor behind light, sweet crude in closing at
a record $140.21 a barrel on the New York Mercantile Exchange Friday, after
hitting an intraday high above $142 a barrel. The Federal Reserve left rates
unchanged Wednesday and maintained a vigilant tone about inflation.

“People will go and invest somewhere else,” if the Fed opted to raise rates,
el-Badri said. “I’m sure the price will come down,” he added, sanguine about the
pace and degree of any downturn in prices.

“We don’t prefer $137 (a barrel) today and $10 tomorrow. Whether it’s $80, $90,
$110, whatever, that price should reflect supply and demand fundamentals,”
el-Badri told an investor who had asked if he was concerned by the broad church
of investors, including retail investors exposed through exchange-traded funds,
in oil nowadays.

“I’m sure they’ll leave gradually. It’s no problem for us,” el-Badri added,
though he warned such investors, “Please do anything but don’t play with oil.”

El-Badri said he found allies for his widely-shared view that speculative money
was the prime culprit in today’s oil prices in the chief executives of many major
oil companies who attended a hastily arranged oil summit in Jeddah, Saudi Arabia,
a week ago.

“I was in Jeddah and the (CEO) of Shell (RDSB) said there is no shortage,” as did
the CEOs of ExxonMobil (XOM) and Chevron (CVX) at the same meeting, el-Badri
said. “All oil companies, except BP, think there is no shortage in the market,”
he said, adding U.S. Energy Secretary Samuel Bodman alongside BP PLC (BP) CEO
Tony Hayward as the odd men out for listing fundamentals, rather than
speculators, as the primary cause for scorching oil prices.

And he cited the analyses from banks such as Goldman Sachs (GS) as a further
inflator of prices.

“When Goldman Sachs says we see a lot of ships going east instead of west and for
that reason the price is going to $150…you people make sense of the numbers.
Whatever you write effects the citizen, affects the price of oil,” he told the
audience.

Pressed on why Saudi Arabia a week ago had unilaterally chosen to increase its
oil output a further 200,000 barrels a day if speculators, and not an oil
shortage, explained current prices, el-Badri was insistent that the kingdom has
only “said we will increase production if somebody wants it…if we’ve got
customers.” And no, no one was discounting oil in order to move it, he was sure.

“No one has the courage to give a discount when the price is $140!” he exclaimed,
when pressed by a member of the audience on why OPEC didn’t price its oil to
incentivize the transfer of more of it into commercially held stockpiles over,
say, a three-month period, thus depressing the price.

U.S. Sanctions Drive Oil Up

Elsewhere, el-Badri said that the combination of U.S. sanctions against Iran, the
war in Iraq and previous sanctions on Libya had deprived the world of up to 6
million barrels a day of crude production.

“Without the (since ended U.S.) sanctions, Libya could be producing 3 million to
4 million barrels a day” versus the 2 million barrels a day it does currently, he
said. “Even Iran could have done some more without sanctions…so we are losing
nearly 5 million to 6 million barrels a day because of the sanctions,” if the
impact on Iraq in included.

Asked whether this was a factor in the oil price, el-Badri replied, “I’m not the
one who imposed the sanctions. You must ask the Americans.”

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