OPEC failed to ratify a proposal to raise output from the oil cartel, even as Saudi Arabia and three other Persian Gulf countries pushed for a hike in output. As Steven Mufson reported:
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.
“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.”
Many analysts had expected the cartel to approve the output hike, and the International Energy Agency released a statement saying it was “dissapointed” in OPEC’s decision. As AP explained:
Analysts thought the 12-member group would boost production in an effort to cool off oil prices and take some pressure off the world economy. Increased global demand combined with violent uprisings in oil-rich countries of North Africa and the Middle East forced crude prices 25 percent higher from January to April.
The International Energy Agency in Paris said it was disappointed by OPEC’s inaction. “Ongoing supply disruptions, as well as the fragile state of the global economy, call for a prompt increase in supply,” the agency said.
OPEC countries, which supply about 40 percent of the world’s petroleum demand, typically produce more than their quotas anyway. Still, analysts and investors watch where quotas are set to get a read on whether OPEC is comfortable with the price of oil.
Independent oil analyst Jim Ritterbusch said OPEC’s decision shows that oil-producing countries are more interested in cashing in on high oil prices right now than in stabilizing energy markets. He thinks that Saudi Arabia, which pushed to increase production, will quietly crank up exports anyway.
“They can afford to take a long-term view of the market,” Ritterbusch said. “They don’t want countries to turn to alternative fuels. They don’t want people on buses.”
Even if Saudi Arabia produces more, J.P. Morgan analyst Lawrence Eagles said it won’t be able to pump enough on its own to fully meet increased demand in the third quarter. Eagles expects Brent crude will rise to an average of $130 per barrel this year.
Oil prices rose above $100 a barrel after the news was released, even as OPEC contended that current levels of output would meet world demand. As AP reported:
In the oil markets, the main point of interest was the news that OPEC unexpectedly kept its production levels unchanged.
In the run-up to the meeting, oil prices were trading lower on the expectation that OPEC would raise production to ease crude prices and help the world recovery. Oil prices have been elevated over the past few months partly on the back of concerns that the Arab uprisings, from Libya to Bahrain, may hurt production.
Marc Ostwald, market strategist at Monument Securities, said the objectors to a production increase may have had one theme in common. “They are using foreign exchange reserves from oil revenues to subsidize....food price inflation to avoid the fate of Egypt and Tunisia,” he said.
Analysts say that the high cost of life, particularly food prices, and unemployment were key drivers in the uprisings there.
Soon after OPEC’s announcement, oil prices rose sharply. Benchmark crude for July delivery was up $1.17 at $100.24 a barrel in electronic trading on the New York Mercantile Exchange. Earlier it had traded the equivalent rate lower.
More from The Washington Post