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Oil leaps after Opec fails to strike deal

08/06/2011 16:41
Oil prices jumped sharply after Opec, the producers’ cartel, failed to strike a deal to raise production at the conclusion of a highly charged meeting.

The cartel’s president said the decision was in effect a “rollover” and that the next scheduled meeting of the group would be in December.

There were reports, citing a Opec delegate, that Iran,Venezuela and Algeria had refused to consider an output increase. Mohammad Aliabadi, Opec’s Iranian president, said that the cartel would wait for three months before deciding on its next move.

The news sent Brent crude up sharply, by as much as $2 a barrel. It was trading at $117.77 at about 1330BST.

“It was decided we have about three months to evaluate the situation and then we will make the appropriate decision,” said Mohammad Aliabadi, Opec president. “It’s a rollover.”

Consumer countries have put pressure on the oil producers’ group to raise output after oil prices rose more than 20 per cent since the start of the year. The International Energy Agency has said there is a “clear, urgent need for additional supplies” from Opec.

Opec’s present constraints bind 11 members – Iraq is still exempt – to produce no more than 24.85m barrels a day. In practice, the countries in the quota system pumped 26.15m b/d in April, according to the IEA.

Reuters reported on Wednesday that Saudi Arabia was pushing for an increase in actual production, rather than simply raising its target to formalise current levels of production.

Nonetheless, Saudi Arabia failed to achieve a consensus on Wednesday morning. Speaking ahead of the official start of the meeting, Venezuela’s oil minister described any change in production policy as unnecessary, while Mr Aliabadi said the market remained “well supplied with oil”.

Libya’s place at the table was left empty, with no sign of Omran Abukraa, the official representative nominated by Col Muammer Gaddafi’s regime.

Civil war has almost completely halted Libya’s output, which stood at 1.58m b/d in January. The ministers have two broad options for dealing with the country’s quota. They could choose to reduce it to zero, reflecting the current absence of production, and reallocate Libya’s barrels to other Opec members.

Ali Naimi, the Saudi oil minister and de facto leader of Opec, held informal discussions with his counterparts from Kuwait and the UAE at his suite in the Grand Hotel on Tuesday night.

Mr Naimi, irascible and flustered at the opening of the meeting, remained tight-lipped about his proposals.

As proceedings began, Rafael Ramirez, the Venezuelan oil minister, told journalists: “The market is in balance.” As for increasing the quotas, he said: “We don’t believe it’s necessary.”

Mr Aliabadi had earlier said: “Very much due to Opec’s efforts, the world remains well supplied with oil, with ample spare capacity and adequate stock levels.”

He noted a lack of “effective spare capacity in the downstream sector”, but said: “The basics are right for market stability.”

Mr Aliabadi blamed the recent volatility of the oil price on the “financial sector” and “speculative activity”, which he said had “reached record highs”.