Political rivalry hobbles Opec

Opec talks broke down in acrimony yesterday with Saudi Arabia failing to convince other members of the cartel to lift oil output.

"We were unable to reach an agreement - this is one of the worst meetings we have ever had," said Ali al-Naimi, oil minister for Saudi Arabia, Opec's biggest producer.

The failure to arrive at a deal is a blow for the industrialised consumer countries, which hoped that the Organisation of the Petroleum Exporting Countries would take action to stem fuel-price inflation.

The US had put pressure on Saudi Arabia to deliver a credible deal to cap crude-oil prices and underpin faltering economic growth.

Brent crude rose more than $1 a barrel to above $118 (R797.68).

Al-Naimi said Opec's four Gulf Arab countries proposed that the 12-member group increase output by 1.5million barrels a day to 30.3million barrels a day. This would have included Iraq, which is not bound by Opec quotas.

Seven countries - Libya, Algeria, Angola, Ecuador, Venezuela, Iraq and Iran - were opposed to the Saudi proposal, he said, wanting to keep production unchanged.

Analysts said the backdrop to the disagreement appeared to be political tensions in the Middle East and North Africa.

"One factor is a diverging market view; another is politics," said analyst Samuel Ciszuk, of IHS Global Insight, London. "At times of heated politics or ideological debate, Saudi struggled to dominate as much as it could have, given its size relative to others in Opec."

Qatar has given support to Libyan rebels fighting the government of Muammar Gaddafi. And Saudi Arabia, has angered Shia Iran by using force to support the Sunni Bahraini government in suppressing a Shia rebellion.

Easily Opec's biggest producer, Saudi Arabia normally gets its way.

But this time those in Opec opposed to the US - led by Iran and Venezuela - found enough support to block Riyadh.

"Saudi is the cartel member most interested in earning political points with consuming countries, and maintaining its image as a reliable supplier of last resort," said Katherine Spector, of CIBC World Markets. "Venezuela and Iran probably feel they have less to gain politically by increasing quotas as a symbolic gesture."

Asked why he did not support an increase, Ecuador's oil minister, Wilson Pastor, said: "We do not know what will happen with demand in the next few months."

Despite an Iranian proposal to reconvene in three months in Iran, Opec is not scheduled to meet again until December 14.

The only producer country with significant spare capacity, Saudi will now raise output unilaterally. Earlier in the week, a Gulf official said Saudi was already raising output by at least 500000bpd in June, to 9.7million bpd.

Saudi output was last as high in the middle of 2008, when oil prices set a record of $147 a barrel, shortly before recession sent prices crashing.

Forecasts suggest that more oil is required to stop oil prices rising again.

Opec's Vienna secretariat expects demand in the second half of this year to be 1.7million bpd higher than current cartel output.

Oil prices jumped by $2 yesterday after Opec failed to reach a deal to increase output, raising fears of supply shortages later this year and a price rally that could damage global economic recovery.

"It came as a surprise. It is bullish for prices. If you look at demand, it will be very robust in the next few months and there is a big need for extra Opec oil," said Amrita Sen, of Barclays Capital.

Analysts expected US crude oil inventories to have fallen by 300000 barrels last week. Petrol stocks climbed by a million barrels, according to a Reuters poll.