OPEC unexpectedly decided to leave its production levels unchanged on Wednesday, with senior officials saying their meeting ended in disarray — a stunning admission for an organization that places a premium on consensus decision making.
OPEC officials said the lack of agreement meant that OPEC will maintain present output ceilings with the option of meeting within the next three months for a possible production hike.
"We are unable to reach consensus to ... raise our production," OPEC Secretary General Abdullah Al-Badri told reporters, in comments reflecting unusual tensions in the 12-nation Organization of the Petroleum Exporting Countries.
Analysts covering OPEC for more than 20 years said they could not remember any other time that the normally closed group had admitted to such divisions in its ranks.
Oil prices surged on the news. Benchmark crude for July delivery was up $1.25 to $100.34 per barrel in morning trading on the New York Mercantile Exchange after trading lower ahead of the OPEC meeting.
Saudi Arabia and other influential Gulf nations had pushed to increase production ceilings to calm markets and ease concerns that crude was overpriced for consumer nations struggling with their economies. Those opposed were led by Iran, the second-strongest producer within the Organization of the Petroleum Exporting Countries.
While the Saudis and the Iranians are frequently at loggerheads over pricing, past meetings normally fell in behind Saudi Arabia, which produces the lion's share of OPEC output. But this time, the Saudi-Iranian rivalry combined with major political and economic uncertainties to lead to deadlock.
Among the biggest worries is that unrest in Libya and Yemen could destabilize larger oil-producing nations in the region. The two countries normally produce less than 4 percent of the world's oil needs, and Saudi Arabia and others have boosted output to make up for much of the shortfall.
But while the Saudis have served notice that they are ready to further increase supplies to help compensate for the loss of the daily 1.6 million barrels normally brought to the market by Libya, other OPEC nations — already pumping close to capacity — cannot contribute much. This appeared to have fueled the strong opposition to an output ceiling hike.
Global economic weakness is also worrying producers and consumers.
Weak housing and employment reports from the United States added to the gloom spread by Europe's attempts to bail out governments and Japan's post-Fukushima meltdown. At its present price of around $100 a barrel, benchmark crude may be too expensive for nations struggling to make ends meet, worsening the economic picture and leading to less oil demand.
But with sputtering economies using less energy, raising output to lower prices also risks flooding the market, leading to a surplus that could drive prices below $80 a barrel. Even that benchmark, which is preferred by the Saudis and other moderate OPEC members, is considered too low by price hawks Iran and Venezuela.
Tuesday's sober assessment of the U.S. economy from Federal Reserve chairman Ben Bernanke added to concerns, especially as the central banker failed to indicate that more monetary stimulus was likely.
"Despite all their efforts, the Saudis were not able to convince Iran and other countries to increase production," said Ehsan Ul-Haq, an analyst with KBC Energy Economics. " It means there is a huge disagreement — but it also means that it gives the Saudis free space to do what they like."
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