Wednesday, June 8, 2011

OPEC Can’t Find Consensus on Output Quotas

Saudi Arabian Oil Minister Ali Ibrahim Al-Naimi, center, said, “It was one of the worst meetings we’ve ever had.” Photographer: Joe Klamar/AFP/Getty Images

By Ayesha Daya and Rachel Graham

OPEC failed to reach an agreement on crude production for the first time in at least 20 years, after six countries opposed a Saudi Arabia-led group that urged members to raise output as oil trades above $100 a barrel.

“It was one of the worst meetings we’ve ever had,” Saudi Arabian Oil Minister Ali al-Naimi said as representatives of the 12-member group left the meeting in Vienna after five hours of talks. “We were unable to reach an agreement.” Crude jumped 2.7 percent in 20 minutes in New York after the meeting ended.

The split underscores growing divisions within the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of the world’s crude. Oil has gained 10 percent this year, boosting revenue for producers while raising concern that price gains will stunt economic growth and stoke inflation. A Bloomberg survey of 30 analysts conducted from May 24 to May 31 showed that 27 believed the group would probably leave its output target unchanged.

“It’s a bit surprising because the Saudis usually get their way and the track record since 1998, on balance, has been pretty good,” Mike Wittner, head of oil-market research at Societe Generale SA in New York, said by phone. “But in this particular case, there were very diverse opinions going into the meeting and even looking at the fundamentals, there were different signals.”

Crude Gained

Crude for July delivery gained as much as 2.1 percent to $101.20 a barrel on the New York Mercantile Exchange and was at $100.49 as of 10:30 a.m. local time. Gasoline for July delivery rose 1.77 cents, or 0.6 percent, to $3.0096 a gallon.

Saudi Arabia, OPEC’s largest producer, together with Kuwait, Qatar and the United Arab Emirates, proposed that the group raise its actual output by 1.5 million barrels a day to 30.3 million barrels, Naimi said. The six that opposed an increase were Libya, Angola, Ecuador, Algeria, Iran and Venezuela, he said.

“Saudi Arabia is committed to supplying the needs of the market regardless of the disagreement,” Naimi said, adding that the four members were ready to help.

OPEC announced its biggest-ever output cuts in December 2008 amid a collapse in global demand, capping production at 24.845 million barrels a day for all members except Iraq, which is exempt from the quota system. The limit has remained unchanged since then.

“Reaching the consensus would have been quite challenging,” said Andrey Kryuchenkov , an analyst at VTB Capital in London who correctly forecast the group wouldn’t change its targets. “This is crude bullish as there is certainly no consensus within the group and OPEC is not ready to act united. The market remains undersupplied.”

The 11 nations with production quotas pumped 26.15 million barrels a day in April, according to the Paris-based International Energy Agency. That leaves the group with about 4.5 million barrels a day of spare capacity, most of it in Saudi Arabia, to be tapped in an emergency.

OPEC’s 12 members are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. Iraq is outside the quota system.

To contact the reporter on this story: Ayesha Daya in Dubai at

To contact the editor on this story: Steve Voss in London at

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