Divided OPEC decides not to raise production
06/09/2011 12:07 AM
06/09/2011 12:07 AM
NEW YORK — With their economies slowed by high energy costs, the U.S. and other countries were hoping that OPEC would raise production levels and bring down the price of oil.
The Organization of Petroleum Exporting Countries didn't come to the rescue, however. In a contentious meeting in Vienna on Wednesday, the 12-nation group failed to agree on new production targets. That sets the stage for higher prices for oil and gasoline this year as global demand for oil rises faster than supplies.
Saudi Arabia lobbied for an increase in output, which likely would have likely lowered oil prices. But countries like Iran resisted, arguing that oil supplies are adequate to meet demand and current prices are appropriate.
"We are unable to reach consensus," OPEC Secretary General Abdullah Al-Badri told reporters after the meeting in Vienna ended. Saudi oil minister Ali Naimi called the meeting "one of the worst ever."
Traders were surprised and oil prices climbed. Benchmark West Texas Intermediate for July delivery gained $1.65 to settle at $100.74 a barrel on the New York Mercantile Exchange. In London, Brent crude added $1.07 to settle at $117.85 a barrel on the ICE Futures exchange.
Many analysts were almost certain that OPEC would increase production. OPEC not only supplies 34 percent of the world's oil — about 29.7 million barrels a day — it has the unique ability to crank up production as needed.
Global oil consumption is expected to increase by 2 percent this year to an average of 88.4 million barrels a day.
The International Energy Agency in Paris had urged oil producers to put more crude on the market. "Ongoing supply disruptions, as well as the fragile state of the global economy, call for a prompt increase in supply," the agency said.
The oil market has been worried for months 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. Saudi Arabia and others have boosted output to make up for much of the shortfall.
Oil prices jumped 25 percent from January through April as global demand grew to the highest level on record while violent uprisings in North Africa and the Middle East threatened oil fields and cut off Libya's oil exports.
The U.S. Energy Information Administration's said this week that it expects the global thirst for oil to outpace the industry's ability to pump it by 1.81 million barrels a day between July and September. That's the largest shortfall since the final three months of 2007.
Saudi Arabia has indicated a willingness to supply whatever the market needs. Analyst Jim Ritterbusch thinks the Saudis will quietly increase exports regardless of their quota, since keeping prices under control is in their best interest.
But J.P. Morgan analyst Lawrence Eagles questioned whether Saudi Arabia really could meet increased demand and thinks the lack of an agreement "seems to highlight the limited spare capacity among many (OPEC) members."
The EIA's weekly report on petroleum supplies showed a drop of 4.8 million barrels of oil, but supplies are still more than 2 percent above year-ago levels. Gasoline supplies grew by 2.2 million barrels, while the four-week average demand number inched up for the first time in 11 weeks.
Gasoline pump prices dropped another 1.3 cents Wednesday to a national average of $3.748 a gallon, according to AAA, Wright Express and Oil Price Information Service.