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Oil prices rise as Opec fails to agree on output hike

Oil prices rise as Opec fails to agree on output hike
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First Published: Wed, Jun 08 2011. 11 12 PM IST
Updated: Wed, Jun 08 2011. 11 12 PM IST
London/New York: Oil prices jumped on Wednesday after the Organization of the Petroleum Exporting Countries (Opec) failed to reach a deal to increase output, raising fears of supply shortages later this year that could further fuel a price rally, imperilling the economic recovery.
After several hours, Opec talks broke down as Saudi Arabia failed to convince other members to lift production, as had been expected since last week.
The kingdom has already indicated it would increase output regardless of the outcome, but the rare lack of cohesion rattled traders.
Prices slightly pared gains following US weekly oil inventory data. A reported 4.8 million barrel drop in crude stocks was offset by a 2.2 million barrel rise in gasoline inventories, bigger than expected and raising concerns about eroding demand in the world’s top consumer.
In Vienna, secretary-general El-Badri said he hoped Opec would meet again in three months time after what Saudi oil minister Ali al-Naimi called “one of the worst meetings...ever”.
“It came as a surprise. It is bullish for prices. If you look at demand it will be very robust in the next months and there is a big need for extra Opec oil,” said Amrita Sen from Barclays Capital.
By 1438 GMT US light crude rose $1.38 to $100.47 per barrel, off a peak of $101.20. Brent added $1.17 or 1% to $117.95, more than 50 cents off its peak. Gasoline future reversed gains, falling slight.
Even after Wednesday’s sharp gains, oil prices remain locked in the same narrow trading range that they’ve trodden over the past month, as much as 10% off their post-2008 peaks prior to a correction in early May.
After early indications that Opec would agree a compromise production increase at its most uncertain meeting in years, the producer group appeared to have split into factions that were unable to reconcile deeply divided views.
Naimi said that Saudi Arabia was committed to supply the oil market with whatever oil it needed, and together with its core Gulf allies the UAE, Kuwait and Qatar had proposed an increment of 1.5 million barrels per day (mbpd) over Opec’s current production including Iraq, for overall output of 30.3 mbpd.
He said Libya, Algeria, Angola, Ecuador, Venezuela, Iraq and Iran were opposed.
The failure to reach accord doesn’t necessarily change the outcome for oil markets after a senior Gulf industry official familiar with Saudi oil policy told Reuters earlier this week that Riyadh plans to pump another 500,000 barrels a day to reach at least 9.5 mbpd, its highest in three years.
Most other members do not have any significant spare capacity to allow them to pump more barrels quickly.
It does suggest a new fractiousness in a group that has remained relatively cohesive over the past decade, adding to existing strains around the war in Libya.
And it raises questions about the relevance of the group as a whole.
REUTERS
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First Published: Wed, Jun 08 2011. 11 12 PM IST
More Topics: Markets | Oil | Commodity | Brent | Crude |