OPEC: Duel in the Desert

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 |  Includes: ICE, OIL
by: Bob van der Valk
As of today the Intercontinental Exchange (NYSE:ICE) of London Brent crude oil price went up $2.38 at $119.06, while July West Texas Intermediate (WTI) crude oil gained $1.87 at $100.94 a barrel.

At the conclusion of the June 8 Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna, from which all journalists were banned, Secretary General Abdullah Al-Badri said: "Unfortunately we are unable to reach a consensus to reduce or raise production.” He might as well have announced the duel in the desert had commenced between the Iranian and Saudi Arabian oil ministers, who were on opposite sides of the proposal to increase export quotas by members of the oil cartel.
This is also an admission by the organization, which places a premium on consensus decision making, that it is in complete disarray. This was discussed here earlier this year in my article on March 5, 2011, entitled "Turmoil could lead to OPEC breakup."
The first paragraph stated: "The start of the break up may have been on September 10, 2008, when the Saudis walked out of an OPEC negotiating session in Vienna where the organization voted to reduce production. Although Saudi Arabian OPEC delegates officially endorsed the new quotas, they stated anonymously that they would not observe them. One of their delegates was quoted as saying “Saudi Arabia will meet the market’s demand. We will see what the market requires and we will not leave a customer without oil. The policy has not changed.”
The non-decision at the June 8 meeting, about increasing crude oil production quotas, came after the Libyan oil minister, Omran I M Abukraa, first showed up late to attend the meeting, then did not even vote about increasing crude oil production. It takes seven votes to approve any agreement and Libya’s vote could have broken the deadlock.
The Libyan and Qatar oil ministers threw eye daggers at each other since Qatar is siding with the Libyan rebels.
FOR AN INCREASE

  • SAUDI ARABIA - Oil Minister Ali al-Naimi has not spoken ahead of the meeting. A senior Gulf industry source told Reuters the kingdom plans a unilateral output increase of around 500,000 bpd in June.
  • KUWAIT - "There is a need for more supply in the market," Oil Minister Mohammad al-Busairi told Reuters. "I expect demand to be strong in the third and fourth quarter, the demand will mainly come from Asia," he also said. "I expect OPEC to increase output during this meeting but I am still unsure how much."
  • UNITED ARAB EMIRATES - "We have to look beyond the second quarter, the market will be tight," Oil Minister Mohammed bin Dhaen al-Hamli said.
  • NIGERIA - Represented at the meeting by OPEC Governor Goni Musa Sheikh, who has not been drawn on the issue. He attended the Tuesday meeting of OPEC's Ministerial Monitoring Committee (MMC), which an OPEC delegate said recommended a one million bpd rise.
  • ALGERIA - Oil Minister Youcef Yousfi also has not spoken on a raise but also attended the MMC meeting.

AGAINST AN INCREASE

  • VENEZUELA - President Hugo Chavez said on Tuesday he opposed more OPEC oil: "We do not agree with production being increased now...we must continue to defend fair prices."
  • ECUADOR - President Rafael Correa, speaking beside Chavez, said production should only increase when demand grows.
  • IRAN - Its OPEC governor Mohammad Khatibi has said there is no need to raise production.
  • IRAQ - No direct statement but Oil Minister Abdul-Kareem Luaibi said oil prices were not too high. Iraq is not subject to OPEC output targets.
UNKNOWN

  • QATAR - Energy Minister Mohammed Saleh al-Sada yet to speak in Vienna but the group's second smallest oil producer usually backs the views of its Gulf neighbors.
  • ANGOLA - Angola's oil minister said he did not expect a raise but added he would not oppose one if it were needed.
  • LIBYA - Represented by a stand-in, Omran Abukraa, who is now the oil minister after many defections within the Gadaffi regime. No view stated.
Saudi Arabia will be taking over the leadership role over once again by singularly increasing its crude oil exports. The “Duel in the Desert” will be the decisive moment whether the OPEC cartel will survive. The ten other OPEC members will stand by watching two countries beat up on each other, with al-Naimi representing Saudi Arabia and Khatibi representing Iran and oil consumer countries emerging as winners or losers.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.