Oil Rises as OPEC Maintains Production Level
Source: Bloomberg, Chris Kahn and George Jahn (6/9/11)
"OPEC meeting 'one of the worst ever,' said Saudi Oil Minister Ali Naimi."
With their economies slowed by high energy costs, the U.S. and other countries were hoping that OPEC would raise production levels and bring down the price of oil.
The Organization of Petroleum Exporting Countries didn't come to the rescue, however. In a contentious meeting in Vienna on Wednesday, the 12-nation group failed to agree on new production targets. That sets the stage for higher prices for oil and gasoline later this year as global demand for oil rises faster than supplies.
Saudi Arabia lobbied for an increase in output, which likely would have likely lowered oil prices. But countries like Iran resisted, arguing that oil supplies are adequate to meet demand and current prices are appropriate.
"We are unable to reach consensus," OPEC Secretary General Abdullah Al-Badri told reporters after the meeting in Vienna ended. Saudi Oil Minister Ali Naimi called the meeting "one of the worst ever."
Traders were surprised and oil prices climbed. Benchmark West Texas Intermediate for July delivery gained $1.65 to settle at $100.74 per barrel on the NYME. In London, Brent crude added $1.07 to settle at $117.85 per barrel on the ICE Futures exchange.
Many analysts were almost certain that OPEC would increase production. OPEC not only supplies 34% of the world's oil—about 29.7 million barrels per day—it has the unique ability to crank up production as needed. Other oil-producing countries, such as Canada, Russia and Mexico, don't have that flexibility.
Global oil consumption is expected to increase by 2% this year to an average of 88.4 million barrels per day.
The International Energy Agency in Paris had urged oil producers to put more crude on the market. "Ongoing supply disruptions, as well as the fragile state of the global economy, call for a prompt increase in supply," the agency said.