Opec deadlock puts cartel break-up on the cards

10 June 2011

10 June 2011 | Lindsay Clark

The failure of the Organization of the PetroleumExporting Countries (Opec) to reach agreement on oil production is contributing to speculation that the cartel could break up.

In a statement to mark the end of the 159th Opec Conference in Vienna, the organisation announced it had not reached a production agreement, despite persistently high and rising global oil prices. However, it said it would still strive to stabilise prices. “The organisation abides by its longstanding commitment to order and stability in the international oil market,” it said.

Conflicting strategic and local economic priorities could eventually lead to the break up of the cartel, said John Kennedy, lead analyst at commodity research firm EnergyQuote JHA. “Although it's perhaps too early to say whether we are witnessing the end of Opec, the failure of the Saudi request does expose the different economic perspectives of members,” he said. “The Saudis are cognisant of the impact the 70s oil crisis had on the world economy and are keen to avoid a repeat situation.” 

The Arab state wanted to avoid high prices destroying demand because if customers couldn’t afford it, it would result in a loss of business for oil producers. Kennedy said: “Iran is focusing more on the short-term. It needs oil prices to remain at present levels, to enable them to earn sufficient revenue to finance subsidies designed to counter the effects of high inflation.

“As Saudi Arabia has two thirds of Opec's spare capacity, whether prices will continue on their upward trajectory depends on the extent which Saudi Arabia increases production to keep pace with global oil demand,” Kennedy said.

It was possible that Saudi Arabia would act unilaterally to increase production, before the cartel reached agreement, he said.

The 160th meeting is expected to take place on 14 December 2011 in Vienna.

LATEST
JOBS
Swindon, Wiltshire
upto £40K base (+ Paid overtime and corporate benefits)
Honda Manufacturing Ltd
Kew gardens, Richmond upon Thames, London (Greater)
£37,000 - £42,500 per annum pro rata, depending on skills and experience
Kew Royal Botanic Gardens
SEARCH JOBS
CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates
GO TO CIPS KNOWLEDGE