August 15, 2022

Split by Infighting, OPEC Keeps a Cap on Oil

In the short term, the stalemate, which is a rare public disagreement within the cartel, is unlikely to have more than symbolic importance. OPEC members are already pumping above their quota levels, and Saudi Arabia, the only OPEC country with the ability to increase production significantly, has promised to continue raising its output to satisfy world demand.

Oil traders were largely unruffled, with the price of the American benchmark crude rising less than 2 percent to settle at $100.74 a barrel.

But the discord highlights the widening split between Saudi Arabia and Iran, which are vying for influence in a Middle East that is being rapidly reshaped by populist uprisings throughout the region. The public disagreement also underscores that the 12 OPEC member countries are increasingly making their own decisions about production levels rather than bowing to the collective judgment of the group.

“This longstanding Iranian-Saudi competition is now being played out in OPEC,” said David L. Goldwyn, until recently the State Department’s coordinator for international energy affairs. “Unfortunately for Iran, and fortunately for the rest of us, it’s Saudi Arabia that has the spare capacity to give. So Iran can grab the headlines, but Saudi Arabia will follow its own judgment.”

At the meeting, Saudi Arabia, which has historically wielded the greatest clout within the group, argued for a change in production quotas that had been set nearly three years ago. But six other countries with quotas, led by Iran, the current leader of OPEC, refused to agree, arguing that the world’s markets were already flush with oil and that high prices were merely the fault of speculators.

“It was one of the worst meetings we’ve ever had,” the Saudi oil minister, Ali al-Naimi, told reporters after the meeting. He promised that his country and all the Persian Gulf members with spare production capacity, including Kuwait, the United Arab Emirates and Qatar, would assure that the world is well supplied with oil.

It was the first time in two decades that OPEC delegates could not arrive at a public agreement at a formal meeting.

With oil exports from Libya and Yemen essentially frozen because of the violent conflicts there, OPEC has faced growing pressure to increase its production to make up the difference.

On Wednesday, the Obama administration said it was disappointed by OPEC’s inaction.

“We believe that we are in a situation where supply does not meet demand,” a White House spokesman, Jay Carney, said. He said President Obama would consider releasing oil from the nation’s strategic reserves if necessary, although gasoline prices have eased a bit in the last month.

As a group, OPEC members are currently pumping about 1.5 million barrels a day above their quota levels anyway, and Saudi Arabia has been increasing output during the last several weeks by an estimated 200,000 barrels a day. Even Iran has been exceeding its allotment by about 50,000 barrels a day for more than a year to raise money to counter economic sanctions.

Fadel Gheit, an oil analyst and managing director of Oppenheimer Company, said that OPEC’s failure to adjust quotas made little difference.

“Everybody in OPEC is cheating and everyone knows that,” he said. “Don’t listen to what they say, but watch what they do.”

In a short statement after OPEC ministers met behind closed doors in Vienna on Wednesday, the organization said, “No formal decision was reached on a production agreement. However, the organization abides by its longstanding commitment to order and stability in the international oil market.”

OPEC ministers are likely to meet again within three months, possibly in Iran, to reconsider their decision.

Article source: http://www.nytimes.com/2011/06/09/business/global/09opec.html?partner=rss&emc=rss

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