OPEC fails to ratify proposal to boost the oil cartel’s output
The Organization of the Petroleum Exporting Countries meeting ended in stalemate Wednesday, after failing to ratify a proposal by four Persian Gulf nations to boost the cartel’s output in the face of high crude oil prices.
Saudi Arabia and three other countries proposed raising output by 1.5 million barrels a day, less than the amount OPEC itself said in a May report would be needed to meet higher demand as the summer driving season arrives.
But other nations said that the world market has enough oil, even with the loss of Libya’s 1.2 million to 1.5 million barrels a day of exports.
“The world remains well-supplied with oil, with ample spare capacity and adequate stock levels,” Mohammad Aliabadi, Iran’s acting petroleum minister said in his prepared opening statement as president of the OPEC session. Instead, he said, “excessive speculation in the futures markets increases volatility unrelated to fundamentals.”
“It was one of the worst meetings we’ve ever had,” Saudi oil minister Ali al-Naimi later told reporters in Vienna, according to Bloomberg News. “We were unable to reach an agreement.”
Naimi said Saudi Arabia would continue to meet global demand, but crude oil prices rose in New York and London nonetheless. In the New York exchange, the price of the benchmark West Texas Intermediate edged up to $100.54 a barrel at 11 a.m., up $1.45.
The 12 members of OPEC — including Iraq — produced 28.84 million barrels a day in May, according to trade publication Argus Global Markets, accounting for about 40 percent of the world’s oil. Only a few of the nations, most notably Saudi Arabia, have excess production capacity. Saudi Arabia can produce as much as an additional 3.5 million barrels a day, according to various estimates.
“While the lack of coordination can be disconcerting, the fact remains that the vast majority of OPEC spare capacity remains in Saudi Arabia,” said David Greely, an oil analyst at Goldman Sachs. “Consequently, it still remains a question of Saudi’s willingness and ability to raise production to keep pace with world oil demand growth.”
Greely said he expects OPEC output to rise in the second half of this year to meet growing demand, but he warned that OPEC’s spare capacity would be “exhausted by continued growth in world oil demand in 2012.”
The International Energy Agency issued a statement noting “with disappointment that OPEC members today were unable to agree on the need to make more oil available to the market.”
The IEA said “of course what really matters is actual supply, which should move in line with seasonally rising demand, and we urge key producers to respond accordingly. Ongoing supply disruptions, as well as the fragile state of global economy, call for a prompt increase in supply on a competitive basis that will allow refiners to boost throughputs and meet rising seasonal demand.”
The agency warned that if OPEC fails to respond that “a further tightening in the market and potential increases in prices risk undermining economic recovery, which is in the interests neither of producers or consumers.”