OPEC fails to agree to production increases at 159th meeting

OPEC was left in disarray after failing to find a broad consensus on the topic of raising oil production to calm market fears at the 159^th Meeting of OPEC.

Saudi Arabia and other gulf nations had pushed for an increase in production to calm the markets and soothe consumer nations who feel the price of crude has risen too far. However, Iran led opposition to the motion and it was not possible to force a resolution. This could have wide reaching repercussions though as OPEC historically has been united behind Saudi Arabia, the largest oil producing member state of OPEC, and this lack of unity will tarnish the organisation’s image as an oil market regulator.

There are concerns that the ongoing civil unrest in Yemen and Libya could have a knock-on effect on neighbouring countries and lead to a fall in oil production. So far Saudi Arabia and other producers have been able to make up the shortfall, but many member so OPEC are already operating near to full capacity, and any increase in output will require further investment in infrastructure.

There is also concern from producers that even though the price of crude oil is at an all-time high, an increase in production could flood the market and lead to a significant price drop as many countries are still struggling out of recession, so demand is lower than usual. Saudi Arabia and more moderate members of OPEC set the benchmark price at approximately US$ 80/bbl, but Iran and Venezuela do not regard this as a good price and would like to see it stay higher.

However OPEC’s reticence about increasing production may well backfire as according to the International Energy Agency, ongoing supply disruptions, as well as the fragile state of the global economy, call for a prompt increase in supply on a competitive basis that will allow refiners to boost throughputs and meet rising seasonal demand. Otherwise, a further tightening in the market and potential increases in prices risk undermining economic recovery, which is in the interests neither of producers or consumers.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/09062011/opec_fails_to_agree_to_production_increases_at_159th_meeting/