OPEC Expectations Don’t Come Through

July 4, 2011 - PRLog -- The Organisation of the Petroleum Exporting Countries (OPEC), whose 12 member nations pump 40 percent of the world's oil, met recently in Vienna for an output decision amid consumer calls for lower prices and deep divisions over Libya. Oil prices jumped after OPEC failed to reach a deal to increase output, raising fears of supply shortages later this year that could fuel a further price rally, imperilling the economic recovery. The talks broke down as Saudi Arabia failed to convince other members to lift production. Further gains in the oil prices were limited by expectations that the world's top exporter would unilaterally boost output anyway. OPEC officials said they hoped the group would meet again in three months time.

Addressing the opening session of the 150th ministerial meeting of OPEC in Vienna, newly appointed caretaker of the Iranian Oil Ministry, Mohammad Ali Abad called on OPEC members to preserve stability in the oil market and underlined the oil cartel's resolve to supply the existing demands for crude in the world market. Iran has also criticized the move to boost output. Other OPEC members, including Venezuela and Angola, are believed to be on Iran's side. Until last week, most OPEC officials and oil-market watchers had anticipated the group would maintain its status quo on output. But in recently, Persian Gulf state leaders, chiefly Saudi Arabia but also Kuwait, have said a confluence of factors, including the continuing outage in war-torn Libya and projections of rising demand in the US and especially China, could leave oil markets tight in the year's second half. The United Arab Emirates oil minister, Mohammad Al-Hamli, said today's relatively well-supplied oil market will give way to a more supply-constrained market. Iraq's oil minister, Abdul Kareem Luaiby, said Tuesday he didn't see "any need" for OPEC to act, adding that current prices "do not pose a threat to economic growth."

Oil prices have rallied since the start of the year on the loss of Libyan oil production because of a civil war, and were approaching 2008 peaks before falling by more than 10 percent in early May. They have traded in a narrow range since then. However, governments in many developed countries say they are still too high and may act as a brake on economic growth. Oil consuming nations reacted with dismay to OPEC's decision, with the International Energy Agency urging key members to hike production anyway. OPEC has left its production target at 24.84 million barrels per day (mbpd) since early 2009 but the cartel is pumping above that limit to compensate for lost supplies from Libya, which has been rocked by violent unrest.  Prior to the meeting, Angolan Oil Minister Jose Botelho de Vasconcelos said OPEC can lift oil production "if the market needs" it to stabilize prices with consideration to supply, geopolitical problems, the relation between the dollar and the euro.

The failure to reach accord doesn't necessarily change the outcome for oil markets. A senior Gulf industry official familiar with Saudi oil policy stated that Riyadh plans to pump another 500,000 bpd to reach at least 9.5 million bpd, its highest in three years. A senior delegate also stated that Saudi Arabia will step up output beyond May's 9.16 million bpd this month.

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