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Oil prices poised to rise as OPEC talks collapse

By Reuters
Wednesday, June 8, 2011 14:49 EDT
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VIENNA (Reuters) – OPEC talks broke down in acrimony on Wednesday without an agreement to raise output after Saudi Arabia failed to convince the oil cartel to lift production.

“We were unable to reach an agreement — this is one of the worst meetings we have ever had,” said Ali al-Naimi, oil minister for Saudi Arabia, OPEC’s biggest producer.

The failure to do a deal is a blow for consumer nations hoping the Organization of the Petroleum Exporting Countries would take action to stem fuel inflation.

It also underlines concerns about OPEC’s willingness to help control prices, perhaps leaving the oil market more open to speculative attack.

“It is absolutely amazing,” said Alirio Parra, Venezuela’s former OPEC president. “This is not market leadership.

Brent crude rose $1.30 a barrel to $118.08.

The United States had put pressure on Saudi to deliver a credible deal to cap crude prices and underpin faltering economic growth.

“We have noted with disappointment that OPEC members today were unable to agree on the need to make more oil available to the market,” said the West’s energy advisor the International Energy Agency.

POLITICS INTERVENE

Analysts said that while there were opposing views on whether markets required more crude, the backdrop to the disagreement revolved around political tensions in the Middle East and North Africa and differences over how to respond to consumer demands.

“One factor is a diverging market view. Another is politics,” said analyst Samuel Ciszuk at IHS. “At times of heated politics/ideological debate, Saudi struggled to dominate as much as it could have given its size vis-a-vis others in OPEC.

Gulf Arab producer Qatar has given support to Libyan rebels fighting the government of Libya’s Muammar Gaddafi. And Saudi Arabia has angered Shi’ite Iran by using force to support the Sunni Bahraini government in suppressing a Shi’ite rebellion.

Saudi’s Naimi said OPEC’s four Gulf Arab countries proposed the 12-member group increase output by 1.5 million barrels a day to 30.3 million barrels a day, including Iraq which is not bound by an OPEC quota.

But they were left isolated by a majority of seven — Libya, Algeria, Angola, Ecuador, Venezuela, Iraq and Iran — who wanted to keep production unchanged. Nigeria’s position was not known.

Iran said the view of the majority was that supplies were adequate for the time being and that it had proposed delaying a decision on more oil by two or three months.

“Iran believes there is no shortage of supply,” acting Oil minister Mohammad Aliabadi told Reuters. “There is no request that we cannot meet, therefore there was no need to raise output and that was the opinion of many other OPEC members.”

Easily OPEC’s biggest producer, Saudi Arabia normally gets its way.

But this time those in OPEC politically opposed to the United States — in particular Iran and Venezuela — found enough support to block Riyadh.

“Saudi is the cartel member most interested in earning political “points’ with consuming countries, and maintaining its image as a reliable supplier of last resort,” said Katherine Spector at CIBC World Markets.

“Venezuela and Iran likely feel they have less to gain politically by increasing quotas as a symbolic gesture.”

UNILATERAL SAUDIS

The only country with significant spare capacity, Saudi Arabia will now raise output unilaterally.

“This agreement … means death to the existing quota system, an invitation for countries to do anything they want until the next OPEC meeting,” said a senior Gulf delegate.

Earlier in the week a Gulf official said Saudi was already raising output in June to 9.5-9.7 million bpd.

Saudi output was last as high in the middle of 2008 after oil prices set a record $147 a barrel, shortly before recession sent prices crashing.

Even OPEC’s own forecasts suggest more oil is required to stop oil prices rising again.

OPEC’s Vienna secretariat sees demand in the second half of the year 1.7 million bpd higher than current cartel output –in line with Saudi Arabia’s proposals.

“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,” a statement from the IEA said.

OPEC has six months to cool off before it reconvenes. Iran offered to host a meeting in August or September but Gulf producers declined. The next scheduled meeting is on December 14 in Vienna.

Source: Reuters US Online Report Business News

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