The OPEC meeting
Disharmony at OPEC breeds uncertainty over the oil price
Jun 9th 2011 | VIENNA | from the print edition
FOR an organisation committed to “co-ordinating and unifying” the policies of its members, the lack of harmony on display at the twice-yearly OPEC meeting in Vienna on June 8th was rather unfortunate. The seating arrangements may not have helped: the representatives of Libya and those of Qatar—which is backing rebel forces in their battle against Colonel Qaddafi—were side by side.
Rather than reading from an official communiqué, OPEC’s secretary-general, Abdalla el-Badri, admitted that after a “thorough debate” on the oil markets the group had been “unable to reach a consensus” between those countries wanting a production increase and those happy to do nothing. Hardly fighting talk but an unusual admission that not all was sweetness and light. The news that OPEC production quotas would not budge immediately sent oil prices upward.
Rumours circulated that Saudi Arabia had walked out. The lack of agreement counts as a defeat for the kingdom, which had wanted to signal that more oil would be available to a market where a barrel of Brent crude now fetches $118 compared with an average of $80 in 2010.
Many thought that quotas might at least be adjusted to take account of reality. In May OPEC pumped 29m barrels a day (b/d) of oil (including Iran, which is not in the quota system) whereas official quotas, last formally changed in 2007, stand at 24.8m b/d. Others expected OPEC to agree to pump up to 30.5m b/d to tame prices.
But OPEC is split into two camps, those with spare capacity (of which Saudi Arabia controls 70%) and those that cannot pump any more oil. The first camp worries that the lofty bill for a barrel of oil is damaging the world economy and a further price spike could destroy demand. Countries in the second camp, such as Iran, are happy with the high price and do not want more oil to get onto the market.
Mr el-Badri accepted that members had disagreed over data on supply and demand. The numbers are not clear-cut. Although the International Energy Agency, an energy consumers’ club, has said that demand will grow by 1.3m b/d this year (after rising by an amazing 2.8m b/d in 2010; see article), there are signs that high prices are having an effect. Oil use in rich countries shrank by 2.8% in March compared with a year ago; growth in emerging markets slowed to 4%.
As Bill Farren-Price of PPI, a consultancy, points out, it is more informative to watch what Saudi Arabia does than what OPEC says. OPEC supply is down by 1.3m b/d since Libya’s oil disappeared from the market. The Saudis have already pledged to fill that gap and have made crude available. They may be tempted to go it alone and pump even more oil in order to keep prices in check before a rise in seasonal demand. If consumption is already on the wane, however, new supply could see prices tumble, at least temporarily. That would not improve the mood when OPEC next gathers in December.
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