OPEC Keeps Lid on Oil Production Targets - Global Business

HOUSTON - The OPEC ministers did not reach a consensus on Wednesday on rising levels of oil production, leaving quotas in place, despite rising world prices.

The lack of action, however modest, was a setback for Saudi Arabia, which had advocated a change in production quotas that had been set three years ago. But it is likely to have a little more symbolic importance as the organization is now pumping about 1.5 million barrels above the quota level anyway and Saudi Arabia has been increasing production in recent weeks by about 200,000 barrels per day.

Iran led the bloc of countries opposed to changing the quotas, even if it was above his own allocation of approximately 50,000 barrels per day for over a year to raise money to fight against sanctions economic. Some experts said that Iran's oil, which holds the presidency of the Organization of Petroleum Exporting Countries this year was simply maneuvering to undermine Saudi Arabia's traditional adversary.

reference price of oil rose in response to the surprise outcome, but only modestly, by just over a dollar a barrel.

"Everybody in OPEC is cheating and everyone knows that," said Fadel Gheit, Oppenheimer oil analyst and CEO. "Do not listen to what they say, but look what they doing. "

The decision comes at a time when the international oil markets are tightening, with declining stocks in many parts of the world. The U.S. Department of Energy estimates that this week that global oil consumption will increase by 1.7 million barrels per day, mainly because of the increasing use of oil for electricity generation in China, Japan and the Middle East.

Meanwhile, the crisis in Libya took over 1.3 million barrels per day off the world market, and unrest in Yemen and Syria have removed as much as 300,000 barrels per day.

The International Atomic Energy, the Paris-based organization, which represents industrialized countries, reacted to OPEC's inaction with concern. "We noted with disappointment today OPEC members were unable to agree on the need to make more oil available to the market," the IEA said in a statement. "A further tightening the market and the potential increase in prices could jeopardize the economic recovery."

But the organization also noted that "what really matters is the actual offer."

Libyan exports slowed since around March, Saudi Arabia has assured the importing countries that would support production. As the only member of OPEC spare capacity considerable, estimated at 2.5 to 3 million barrels per day, Saudi Arabia is the only OPEC member that has the ability to support supplies and curb price increases.

"Ultimately, this is how much extra oil Saudi Arabia can or is willing to put on the market," said Amy Myers Jaffe, an energy analyst at Rice University. "Who cares what Iran says? It does not matter. The countries produce what they think is best for their financial needs and long-term strategy."

Iran has managed to block Saudi Arabia, largely because it assumes the presidency. The organization is likely to meet again in three months to Iran to reconsider its decision.

Relations between Iran and Saudi Arabia, never particularly warm, these are tense days during the sectarian crisis in Bahrain. Saudi Arabia has sent over 1,000 soldiers in Bahrain in March to help put the predominantly Shiite Sunni protests against the monarchy. Saudi Arabia accused Iran of inciting the protests, and Iran has criticized Saudi Arabia and Bahrain for repressive policies.

The current quotas of OPEC have been set by the organization of 12 countries in December 2008 when oil prices were falling at the beginning of a global recession. The quotas put a floor on prices slump and kept prices moderate and stable for over a year. But as prices began to rise, many OPEC members have started to cheat, which makes the current quotas little more than a landmark in the shade.

With oil prices rising by more than 35 per cent last year, a debate has emerged within OPEC about what to do about them. Saudi Arabia has led the members who want to help save the economic recovery at moderate prices, while Iran and Venezuela have resisted. Most OPEC countries, including Saudi Arabia, saying that speculators rather tight supplies are the cause of rising prices.

"No formal decision has been reached on a production agreement," OPEC said in a brief statement after the closed meeting. "However, the organization continues its longstanding commitment to order and stability of the international oil market."