Oil prices rose Friday and posted weekly gains, boosted by heightened geopolitical tensions over Iran and strong gasoline futures, while a stronger dollar and concern about the euro zone debt crisis limited gains, the Saudi American Bank group (samba) said in its latest monthly bulletin that OPEC oil ministers are expected to agree on action to support crude prices at around $100 a barrel when they meet in Vienna on Dec. 14. “As such, the effectively irrelevant quotas agreed back in 2008 will remain in place,” it said. Hence, “we expect the meeting will be less contentious than the last and that a consensus will emerge over the need to support prices at around $100 given members higher budget break-even prices,” it noted. The report pointed out that a “geopolitical risk premium” might ensue amid ongoing conflicts in the MENA region. “The escalating tensions over Iran's nuclear ambitions are a case in point.” “Perhaps most importantly, Saudi Arabia with or without OPEC, is expected to act to provide support to prices if necessary. We thus project that average Brent prices will hold at $100 in 2012, although there may be large movements during the year as markets respond to evolving economic and political developments.” Yet, the report said that the current supply and demand projections from major energy agencies would suggest an OPEC cut is possible as combined increases in non-OPEC output and OPEC NGLs are expected to be sufficient to cover all projected demand growth next year. But it added that developments in market fundamentals remain hard to predict and 2012 looks set to be another year of uncertainty. “Should market fundamentals and prices weaken significantly during the first half of 2012, then a response from OPEC is possible at its June meeting,” it said. “This would likely involve a cut in output led by Saudi Arabia, although if necessary, the Kingdom could combine with other GCC members to cut production without broader OPEC cooperation.” “Looking through this fog of uncertainty our tendency is to expect that weaker market fundamentals will exert downward pressure on prices,” it said. “Downside risks on the demand side loom large while supply developments appear biased on the upside. However tempering any decline will be the fact that the marginal cost of production and price level needed to encourage necessary investment has risen, and probably now stands at around $90… US shale oil is particularly expensive to produce.” Benchmark crude rose 76 cents Friday to finish the week at $100.96 per barrel in New York. Prices climbed almost every day after ending at $96.77 a barrel a week ago. Brent crude rose 97 cents to finish at $109.68 a barrel in London. Prices jumped early Friday after the government reported that the unemployment rate dropped last month to 8.6 percent – the lowest level since March 2009.
