OPEC Can't Agree On Production Quotas
The group, made up of 12 countries, met in Vienna and came to no decision about raising the current quotas for the production of oil. Saudi Arabia, Kuwait and the United Arab Emirates all voiced concern about the lack of oil, while Algeria, Angola, Libya, Iran, Iraq, Ecuador and Venezuela all insisted at keeping quotas at current levels.
However, Saudi Arabia, OPEC's largest oil producer, has been producing over quota in recent months due to the outbreak of unrest in Libya. Saudi officials said the meeting was the "worst we have ever had," as the group failed to come to an agreement on its first official production increase since 2007.
Now, analysts say countries around the world, including the United States, where gas prices have continued to hit record highs, may have to pay the price.
From the Los Angeles Times:
U.S. light crude, which had been trading as low as $98.02 a barrel Wednesday, surged in response to the OPEC development and an Energy Department report that U.S. crude inventories had declined more than expected. Oil closed at $100.74 a barrel, up $1.65, on the New York Mercantile Exchange. London benchmark Brent crude climbed $1.07 to $117.85 a barrel on the ICE Futures Exchange.
Amy Myers Jaffe, senior energy analyst at Rice University's Baker Institute for Public Policy, warned that rising demand could push U.S. oil futures to between $110 and $120 a barrel. That would equate to pump prices of $3.93 to $4.25 a gallon across the U.S., just as gasoline prices seemed to be headed for a sustained decline.
"We can expect gasoline prices to creep up if it stays in this range," Jaffe said.
Dissenters in OPEC said keeping production quotas the same was essential to keeping the oil market fair for all sellers.
"We do not agree with production being increased now," Venezuelan President Hugo Chavez said. "We must continue to consolidate balance in the market and we have to defend fair prices."
In the past, all members of OPEC have yielded to Saudi-driven decisions at their bi-annual summits. But rising tensions in the Arab world have put some governments on edge about Saudi Arabia's global perspective.
The Wall Street Journal reported:
But the outcome also follows unprecedented political upheaval in the region that has exacerbated tensions between governments across the oil-rich Middle East and North Africa.
"You might now be seeing the beginning of a significant split between OPEC members," said Andy Lipow, the president of oil-trading adviser Lipow Oil Associates.
Iran and Saudi Arabia have long led opposing camps within OPEC, with the Saudis leading OPEC toward a more moderate oil-price policy favored by the West, and Iran pushing for higher prices.
The Arab political upheaval has added new dimensions to the rivalry. Iran has publicly criticized Saudi Arabia's move to send forces to neighboring Bahrain amid a Shiite uprising. Gulf countries accuse Iran of stirring problems in Bahrain and elsewhere in the region.
The failure of the Saudi-led effort to boost OPEC—on the heels of the prodemocracy uprisings—raises questions about the link between divisions in the region and within the premier oil production body. Some analysts caution against reading too much into the link.
OPEC insiders emphasize that the body is above all an economic organization, and that its leaders base their decisions on sophisticated readings of where the global economy could heading, about which reasonable people can disagree.
OPEC produces approximately 40 percent of the world's oil.