Oil Relief Unlikely Before September
06/08/2011 3:23 pm EST
Maybe next time.
OPEC ministers, who were meeting in Vienna today, were unable to reach an agreement on changing production quotas last set in December 2008. That December quota amounted to a production cut, supporting 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 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, exacerbated by a report of falling US crude-oil inventories, helped push up oil prices this morning.
The Energy Department announced this morning that US crude 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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