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OPEC leaves output level; oil prices jump
VIENNA (AP) — OPEC unexpectedly left its production levels unchanged on Wednesday, causing oil prices to jump, as senior officials said their meeting ended in disarray — a stunning admission for an organization that places a premium on consensus decision making.
OPEC officials said that because of a policy deadlock, the group will maintain present output ceilings with the option of meeting within the next three months to consider a hike.
“We are unable to reach consensus to … raise our production,” OPEC Secretary General Abdullah Al-Badri told reporters, in comments reflecting unusual tensions in the 12-nation Organization of the Petroleum Exporting Countries.
Analysts covering OPEC for more than 20 years said they could not remember any other time that the normally closed group had admitted to such divisions in its ranks. Some even saw the abortive meeting as a harbinger of demise for the organization, which produces more than a third of the world’s petroleum.
“OPEC is … on the point of break-up,” said Marc Ostwald of Monument Securities. “A broader perspective is that the post World War II world order is fracturing in a spectacular fashion, be it the EU/Eurozone, the World Bank/IMF, (or) OPEC.”
Other experts were less outspoken but agreed Wednesday’s outcome would weaken the image of OPEC as a major regulator of oil markets.
The news caught markets by surprise, sending oil prices sharply higher. Benchmark crude for July delivery was up $1.25 to $100.34 per barrel in morning trading on the New York Mercantile Exchange after trading lower ahead of the OPEC meeting.
Saudi Arabia and other influential Gulf nations had pushed to increase production ceilings to calm markets and ease concerns that crude was overpriced for consumer nations struggling with their economies. Those opposed were led by Iran, the second-strongest producer within the Organization of the Petroleum Exporting Countries.
While the Saudis and the Iranians are frequently at loggerheads over pricing, past meetings normally fell in behind Saudi Arabia, which produces the lion’s share of OPEC output. But this time, the Saudi-Iranian rivalry combined with major political and economic uncertainties to lead to deadlock.
Among the biggest worries is that unrest in Libya and Yemen could destabilize larger oil-producing nations in the region. The two countries normally produce less than 4 percent of the world’s oil needs, and Saudi Arabia and others have boosted output to make up for much of the shortfall.
But while the Saudis have served notice that they are ready to further increase supplies to help compensate for the loss of the daily 1.6 million barrels normally brought to the market by Libya, other OPEC nations — already pumping close to capacity — cannot contribute much. This appeared to have fueled the strong opposition to an output ceiling hike.
Global economic weakness is also worrying producers and consumers.
Poor housing and employment reports from the United States added to the gloom spread by Europe’s attempts to bail out governments and Japan’s post-Fukushima slump. At its present price of around $100 a barrel, benchmark crude may be too expensive for nations struggling to make ends meet, worsening the economic picture and leading to less oil demand.
But with sputtering economies using less energy, raising output to lower prices also risks flooding the market, leading to a surplus that could drive prices below $80 a barrel. That benchmark, which is preferred by the Saudis and other moderate OPEC members, is considered too low by price hawks Iran and Venezuela.
By Brahma Chellaney
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