Oil price rises sharply after Opec meeting collapse

Hopes that Opec would bring relief to motorists and wider western economies from soaring energy prices were today dashed when a crunch meeting of the oil cartel broke up in disarray without the expected agreement to increase crude output.

Political turbulence in North Africa and the Middle East undermined the usual consensus at the meeting in Vienna and led to speculation that new internal rivalries could split the group, leading to even more market chaos.

Saudi Arabia, the world's largest oil producer and influential Opec dove, was outmanoeuvred by Iran, Venezuela, Libya and others, later describing the summit as "one of the worst meetings we have ever had".

The price of Brent crude soared a further $1.65 to $118.43 a barrel as an expected Opec agreement to raise its production quotas by about 1.5 million barrels a day failed to materialise.

Petrol in the UK averages 136p a litre – 18p more than a year ago – and Edmund King, president of the AA, said the prospect of a new rise on the back of the failed Opec meeting was a "slap in the face" for the consumer.

"With so many indicators pointing to the pain of high oil prices and the detrimental effect they are having on family budgets and economic recovery, Opec's decision simply deepens the gloom," he added.

The four west-leaning Gulf Arab states had proposed increasing daily output to more than 30m barrels but they were outvoted by seven countries including Venezuela and Algeria who wanted them left unchanged.

Saudi Arabia made clear it was not happy. Ali al-Naimi, oil minister for a country which has close ties with America and Britain said: "We were unable to reach an agreement – this is one of the worst meetings we have ever had.

Market analysts said there were genuine differences inside Opec about whether the bout of very high oil prices could last and undermine the global economy or naturally fall back.

"One factor is a diverging market view. Another is politics," said analyst Samuel Ciszuk at IHS global Insight. "At times of heated politics and ideological debate, Saudi struggled to dominate as much as it could have given its size vis-a-vis others in OPEC."

The atmosphere had been poisoned by Qatar backing Libyan rebels fighting the government of Muammar Gaddafi, while Saudi Arabia has angered Shi'ite Iran by using force to help the Sunni-led Bahrain suppress a Shi'ite rebellion.

But this time those in OPEC politically opposed to the United States – led by Iran and Venezuela – found enough support to block Riyadh whose views normally hold sway.

Katherine Spector at CIBC World Markets said: "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.

But several Opec members also argued they needed to keep tax revenues high to protect their citizens against the rocketing cost of other commodities such as food, and could not to let the oil price decline.

Opec is not due to meet again for another three months, and some analysts said the angry divergence of views could mark the beginning of the end for the cartel.

"A new world order beckons, doubtless preceded by disorder," said Marc Ostwald, strategist at Monument Securities. He predicted that non-Opec members such as Russia and Kazakhstan could be the main beneficiaries if the cartel's power wanes.

Production quotas have now remained unchanged since 2009. The International Energy Agency, the global watchdog, expressed its "disappointment" at Opec's decision, and urged producers to increase output anyway.

"A further tightening in the market and potential increases in prices risk undermining economic recovery, which is in the interests neither of producers nor consumers."

However, Julian Jessop, chief international economist at Capital Economics, said the weakening outlook for the global economy should bring oil prices down later this year . "We continue to expect the price of Brent crude to drop back below $90 per barrel by the end of the year, as global demand continues to disappoint, the Middle East risk premium fades, and the dollar rebounds."

Source: guardian.co.uk