OIL SURGES AFTER OPEC STALEMATE
THE PRICE of oil jumped yesterday after cartel Opec failed to agree a deal to increase its output, making future supply uncertain and raising concerns over the economic recovery.
Brent crude spot prices rose 2.1 per cent to $117.84 a barrel after Opec’s meeting in Vienna ended without deciding whether the 12 members should raise production quotas by 1.5m barrels a day, as suggested by Saudi Arabia.
Six countries including Iran, Venezuela and Libya refused to follow Saudi Arabia’s lead, arguing about the level of global demand, in a sign of growing tensions between the members over the direction of the cartel.
Opec’s own forecasts suggest demand for the club’s oil will rise by 2.1m barrels a day between the second and third quarters.
“We were unable to reach an agreement – this is one of the worst meetings we have ever had,” Saudi oil minister Ali al-Naimi said after failing to convince other members.
Venezuelan minister Rafael Ramirez said a rise in output would have caused the price to “collapse” given current volatility, but insisted: “Opec remains united and has emerged strengthened from the meeting.”
Oil futures shot up more than two per cent just minutes after the meeting ended, having earlier fallen in anticipation of a production hike. Brent crude for July delivery stood at $117.87 a barrel last night, a rise of one per cent.
The news added to a broader uncertainty in the equities markets, which saw the FTSE 100 close at its lowest level in almost three months.
“It came as a surprise. If you look at demand it will be very robust in the next months and there is a big need for extra Opec oil,” said Amrita Sen from Barclays Capital. “It will be important to see if the Saudis are willing to supply more… Otherwise the market will be very tight.”
The International Energy Agency (IEA) said it was disappointed, adding: “What really matters is actual supply, which should move in line with seasonally rising demand, and we urge key producers to respond accordingly. Otherwise, a further tightening in the market and potential increases in prices risk undermining economic recovery.” The IEA estimated last month that Opec produced 28.75m barrels a day in the first quarter of the year, or just under a third of the global oil supply.