Oil drops as Opec sticks to policy of unfettered production

Organization of the Petroleum Exporting Countries (Opec) will stick to its policy of unfettered production after members failed to agree on a new output ceiling, but ministers were united in their optimism that global oil markets are improving.

While crude prices dipped after yesterday’s meeting, there was little of the rancor that punctuated last December’s summit.

The group was also able to appoint a new secretary-general — Nigeria’s Mohammed Barkindo — something it could not agree on last year.

All members see the same market fundamentals and have been “highly co-operative”, new Saudi oil minister Khalid Al-Falih told reporters in Vienna.

Iran’s Bijan Namdar Zanganeh reported “very good unity”, while his Nigerian counterpart said relations had improved “substantially” and even Venezuela — a strong supporter of freezing output — said the meeting was “very positive”.

Saudi Arabia had floated the idea of restoring a group production ceiling, though members decided it was not necessary now.

Opec needs more time to come up with an output cap, outgoing secretary-general Abdalla El-Badri said after the meeting, adding that it is hard to find a target when Iranian production is rising and significant Libyan volumes are halted.

“There was far less animosity between players who did not see eye-to-eye the last few meetings,” said Amrita Sen, chief oil analyst at consultant Energy Aspects.

“The fact the group managed to elect a new secretary- general after many failed attempts also points towards a small measure of co-operation.”

Yet divisions remain.

While Saudi Arabia had shown willingness to mend divisions with cash-strapped members demanding a new group ceiling, Iran said it would only support individual country quotas that would be difficult to agree in a single meeting.

Iran rejected any cap on output as it restores volumes after sanctions were lifted in January.

The country’s refusal to participate in a production freeze proposed earlier this year prompted Saudi Arabia to block a deal between Opec and Russia in April.

Although Opec regularly ignores its own output targets, and there was no suggestion anyone would cut production yesterday, even a token gesture could have helped to boost prices. Brent crude dropped as much as 1.8% and was down 0.4% at $49.54 a barrel late trading.

Yesterday’s summit follows a recovery in oil to almost $50 a barrel after depressed prices took their toll on supplies.

That suggests Opec’s decision to maintain output amid a global glut is paying off, with higher-cost producers cutting back.


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