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. Last Updated: 07/27/2016

Gulf Oil Firms Shrug Off Price Slump

DUBAI, United Arab Emirates -- Major Gulf oil producers Wednesday played down the current weak crude price and expressed optimism that strong adherence to an agreement to curtail production would deliver market recovery.

A Gulf source said Saudi Arabia - the world's biggest oil producer and exporter - believes market fundamentals are still solid despite bearish sentiments.

"The decline in the oil price is due to speculation. The fundamentals are still sound," the Gulf source familiar with Saudi thinking said.

The remarks were made days before Mexican Oil Minister Luis Tellez was to travel to the Gulf to discuss the market with his Saudi and Kuwaiti counterparts.

World oil prices fell sharply Tuesday after Iraq said it would be able to raise crude exports under a new phase of the United Nations oil-for-food exchange.

Benchmark North Sea Brent blend crude oil futures for July delivery fell 65 cents to $14.55 a barrel following the announcement Monday by the Iraqi oil minister.

"Saudi Arabia is confident that prices will improve," said the Gulf source. "Saudi Arabia expects prices to reach $18 to $20 a barrel in weeks."

"Saudi Arabia and other producers are determined to do whatever is possible to improve prices," he added.

OPEC and producers outside the cartel reached a deal in March to remove just over two million barrels per day from world markets in a bid to prop up prices.

Iran's OPEC governor, Hossein Kazempour Ardebili, expressed confidence that high compliance with the supply restraint pact would boost prices. He said it was too early to review the output curbs.

"It is premature to talk about touching the level of production," he told Reuters by telephone from Tehran.

Kazempour said Iran was satisfied with the level of compliance with the production cut accord and expected better prices.

"Iran is satisfied with the level which was above 90 percent," he said, referring to the month of May. "We are confident that with this level of compliance and with growing demand in the months ahead prices shall improve."

Saudi Arabia also shares the view that compliance with the cuts was above 90 percent in May, the Gulf source said.

Kazempour noted several factors limiting the impact of strong compliance with the output curb agreement. He cited higher gasoline stocks, news about Iraq's higher production targets and reduced refinery throughput.

Optimism over the fate of the market was also expressed by United Arab Emirates Oil Minister Obaid bin Saif al-Nasseri.

He stressed in remarks published in UAE newspapers Wednesday that the market glut would not last long and that a balance between supply and demand would return "soon."

Tellez said last month that the March cut agreement may need review before the accord expires next spring, if prices remained high.

He and Saudi Oil Minister Ali al-Naimi will review market conditions since the March deal, the Gulf source said. Tellez is then due to travel to Kuwait for similar talks Sunday.