OPEC Unexpectedly Leaves Oil Production Unchanged

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.

"I think there were some tensions," said Jason Schenker, president of Prestige Economics. "But everyone has to do business and countries have different views on what the future of demand looks like."

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.

Tuesday's sober assessment of the U.S. economy from Federal Reserve chairman Ben Bernanke added to concerns, especially as the central banker failed to indicate that more monetary stimulus was likely.

"Despite all their efforts, the Saudis were not able to convince Iran and other countries to increase production," said Ehsan Ul-Haq, an analyst with KBC Energy Economics. " It means there is a huge disagreement - but it also means that it gives the Saudis free space to do what they like."

Going into the meeting, some OPEC nations had signaled that the ministers could opt to raise the output ceiling to actual production levels of around 26 million barrels a day. Add to that the daily 2.7 million barrels produced by Iraq, which is not bound by quotas, and OPEC would have been bringing more than 29 million barrels a day to the market.

The 11 OPEC members are already exceeding their current production quotas. Their output is an estimated 26.15 million barrels daily - about 1.3 million barrels above the daily overall OPEC production target of 24.85 million barrels a day agreed two years ago.

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#1. A Cartel is an illegal business organization formed to artificially raise prices. The USA enacted laws to deal with this after John D. Rockefeller formed the Standard Oil Trust to eliminate his competitors and control the supply of US produced petroleum.
#2. Any US Corporation that engages in business dealings with a foreign corporation, business entity or government that engages in activities that violate US laws, is also violating US laws and is subject to punishment by the US Government. Many US Corporations have been fined for paying bribes (an illegal business activity under US Laws) to foreign businesses and governments, eventhough it is an accepted business practice in their countries.
#3. If #1 and #2 above are true, then how come nobody is being prosecuted for dealing with the OPEC Cartel?

#4. We have the resources to be energy independant, completely free of OPEC. We can make coal and natural gas into gasoline, jet fuel and diesel. This would create jobs in the USA and stop the cash out flow to the OPEC Cartel. This would be very beneficail to our economy and the greedy OPEC Cartel countries would have to do some thing that they haven't done for a long time. Actually engage in working for a living. They are ******* our economic lifeblood from us the same way a tapeworm takes the nutrition away from the infected host.
Supply and demand pricing (one of the Republican's Favorite slogans) determine the international market price of petroleum, but we wouldn't need OPEC's oil if we used our own resources. We could say, "OPEC wait by the phone and we'll call you if we need any oil"! Organizations like Al Queda would not be getting money from the Iranian Government. Terrorists would have no sponsors!
Can you imagine the formerly wealthy OPEC families reading the on line help wanted advertisements!

June 08 2011 at 7:36 PM Report abuse rate up rate down Reply

more gouging. demand to send all ttroops home

June 08 2011 at 6:50 PM Report abuse rate up rate down Reply

- CGX Energy Inc. (CGXEF) is pleased to announce that an independent resource assessment (the "Report") has been completed by Gustavson Associates LLC of Boulder, Colorado, U.S.A. (Gustavson) for three prospects on the Company's Corentyne Offshore Petroleum Prospecting Licence (PPL) located offshore Guyana, South America. Using probabilistic analysis, Gustavson calculated a total best estimate (P50) Prospective Resource as of February 1, 2010 in three prospects to be 2.8 billion barrels of oil.

June 08 2011 at 6:37 PM Report abuse rate up rate down Reply

OPEC is not the cure they are the problem.OPEC has pulled or stopped so many drilling permits for the stupidest reasons.

June 08 2011 at 6:23 PM Report abuse rate up rate down Reply

oil price to be 125

June 08 2011 at 4:51 PM Report abuse -1 rate up rate down Reply

The $4 a gallon price here in Southern California changed a lot of my friends and clients' summer plans. The good news is, they will spend that money in California that they were going to spend in New Mexico, Europe of Latin America. Speculative trading on oil futures needs to be taxed at a level so high that it will prohibit program traders from dealing in it. As a nation, we need to increase our efforts to develope, wind, trash to engergy, solar and methane fueled generating plants to lessen our dependency on OPEC Oil. As a nation, we still waste virtually all of the oil we import. Time to get smart and stop the flow of American dollars to countries which don't trade with us on equitable terms.

Big Jim

June 08 2011 at 3:50 PM Report abuse rate up rate down Reply

Time for Obama to go over there and bow down again

June 08 2011 at 3:41 PM Report abuse rate up rate down Reply

Of course OPEC will not add to production it would lower the cost. They know the US will do nothing about the problem with an administration along with special interest groups and the EPA making almost impossible for oil companies to drill in this country .

June 08 2011 at 2:36 PM Report abuse +1 rate up rate down Reply

Well, I for one, will not be wasting gas this summer, no extra trips for me, no long drives to the shore, or to site seeing places, resorts. another stay close to home summer. If no one buys the gas, there will be lots of oil becasue no demand, lots of supply. So let China use it. Of course, when the theme parks, and shore points, and the mountain resorts etc.. fairs, carnivals, festivals start seeing a drop off in attendance, you can point out that we are conserving to letting China use it.

June 08 2011 at 1:24 PM Report abuse rate up rate down Reply

time for us to say to envoirmentalist and their so called groups to go sh.. in their hat and drill. were being held hostage by foreign governments. and any nation that voted to not increase quota is to be considered a enemy nation and get no support from us. if their invaded, one less enemy nation. lets see them change their tune.

June 08 2011 at 1:24 PM Report abuse +1 rate up rate down Reply