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Oil prices on Friday hit $66 a barrel, setting a fresh six-month high and heading for their biggest monthly gain in more than 10 years, following Opec’s upbeat comments about oil demand in Asia at its meeting this week.

Abdalla El-Badri, Opec’s secretary general, said prices could rise to $70-$75 a barrel by the end of the year. “The outlook is improving,” Mr El-Badri said over breakfast. But added: “The fundamentals are still weak.”

Mr El-Badri was explaining Opec’s decision on Thursday to keep its production unchanged, betting that the strengthening of the global economy will push prices.

Nymex July West Texas Intermediate rose 92 cents to $66.00 a barrel after reaching $66.03, a fresh seven-month high and up 29.8 per cent this month. WTI is on course for its best monthly performance since March 1999, when it gained 36.5 per cent. ICE July Brent, the European crude benchmark, gained 90 cents at $65.29 a barrel.

Oil prices gained support from upbeat comments from Ali Naimi, Saudi oil minister and de facto Opec leader, who on Thursday said: “The price is good, the market is in good shape and the recovery is under way, so what else could we want?”

Mr El-Badri warned that speculative investment was partly to blame for the increase in prices. “Speculators are coming back, not only to oil, but to all commodities. We are not happy … and we do not want to see them to be a factor in prices.”

Adam Sieminski, chief energy economist at Deutsche Bank, said that the rise in the oil ”market sentiment and oil bullishness seems to us based more on hope than fact.”

”The rise has occurred in spite of fairly bearish fundamentals, with poor demand, high supply, brimming inventories, and plenty spare capacity.”

However, the Opec secretary-general’s unease about speculators did not appear to be widely shared by other members of the cartel.

Some Opec delegates and analysts in Vienna said Saudi Arabia appeared confident that the flow of money into commodities – as investors worry about a pick-up in inflation because low interest rates or a further weakening of the US dollar – would help to support oil prices. Speculative flows, long an Opec foe, could turn into an ally, they said.

However, oil prices – and speculative investment flows – are well below last year’s peak, when oil traded at almost $150 a barrel. Oil prices hit a four-year low of $32.7 a barrel in mid-February.

Mr El-Badri said that it was “too early” for Opec to consider an increase in production and oil inventories would have to fall to the equivalent of 52 days of demand for the group to consider a price increase. Opec said that inventories would not fall to that level until late this year of early 2010.

On Thursday, Opec agreed to leave its production level unchanged at 24.8m barrels a day, following three big output cuts since September, a total of 4.2m b/d – about 5 per cent of global oil demand. The cartel delivered about 80 per cent of the promised supply cut last month, down from 85 per cent in March.

In spite of its agreement to leave output unchanged, Opec’s communiqué reflected nervousness among some of its more bearish members, saying that the cartel was ready to “respond swiftly to any developments which might place oil market stability and their interest in jeopardy”.

At the same time, ministers “reiterated the firm commitment to the individually agreed production allocations”, a sign that Opec is concerned about some member states pumping above the officially sanctioned levels.

FT | Javier Blas | Friday, May 29, 2009