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OPEC can't agree to raise production quotas but oil production will climb anyway
06/08/2011 5:57 pm EST
OPEC ministers meeting in Vienna today were unable to reach agreement on changing production quotas last set in December 2008. That December quota amounted to a production cut to support oil prices as demand slumped after the global economic crisis.
Six members voted against increasing quotas while Saudi Arabia, and three other Gulf Cooperation Council countries voted to increase production by 1.5 million barrels a day.
The “no decision” left “official” production at 24.85 million barrels a day. “Unofficially,” the 11 OPEC members bound by the quotas violated them to pump 26.15 million barrels a day in April. Since then the Saudis have increased production by another 200,000 barrels a day in May and are on track to add another 200,000 to 300,000 barrels a day in June as part of that country’s decision to lower global oil prices.
I expect cheating and production beyond the quotas to continue—Saudi Arabia, Kuwait and the United Arab Emirates will increase production in all likelihood--but the decision not to raise quotas will push oil prices higher. Raising the quotas would have been a go ahead for some members to continue to cheat, but from new higher quota levels.
OPEC’s inability to raise quotas combined with a report of falling U.S. crude oil inventories to push up crude oil prices this morning. At 10:30 a.m. New York time the Energy Department announced that U.S. crude oil inventories fell by 4.85 million barrels to 369 million barrels for the week ended on June 3. That was the biggest drop this year and more than the drop of 1.38 million barrels forecast by analysts surveyed by Bloomberg.
As of 2:15 New York time, Brent crude was up 0.94% and West Texas Intermediate was up 1.48%.
OPEC meets again in three months.
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