An Organization of Petroleum Exporting Countries (OPEC) deadlock June 8 over whether to increase oil production caused global oil prices to jump immediately, and then ease off, late last week.
The oil cartel’s action after a meeting in Vienna June 8 ended in disarray and triggered speculation that the oil consortium’s end may be near. The meeting broke up without an agreement on crude oil output.
“We were unable to reach an agreement — this is one of the worst meetings we have ever had,” Saudi Arabian oil minister Ali Al-Naimi said, according to Reuters.
Crude oil prices on the London futures market, where prices are highest, spiked at more than $119 a barrel before Saudi Arabia announced it would step up production, bringing London prices down to $117 a barrel by the end of the week.
Much of the disarray was linked to the lack of oil reserves currently used to feed the supply, according to news reports. Reuters reported that Mohammad Aliabadi, acting minister of petroleum of the Islamic Republic of Iran and President of the OPEC conference, said there is no longer enough spare capacity even after increasing production.
“Very much due to OPEC’s efforts, the world remains well-supplied with oil, with ample spare capacity and adequate stock levels,” Aliabadi said following the June 8 meeting. “However, it appears that there is not enough effective spare capacity in the downstream sector, which has recently led to further spread of sweet and sour crudes.”
Some experts say that these developments could spell the end of OPEC as the controlling body of much of the world’s oil.
“OPEC is on the point of break-up,” Marc Ostwald of Monument Securities, told the Associated Press. “A broader perspective is that the post-World War II world order is fracturing in a spectacular fashion, be it the EU, Eurozone, the World Bank, IMF, or OPEC.”
Others are less pessimistic about the developments as they believe OPEC will be fine whenever oil prices fall again.
“It is too early to conclude whether this was a temporary blip in the cohesion of the organization or whether OPEC will have to re-invent itself to stay relevant,” Vienna-based oil consultancy JBC told the Wall Street Journal.