RIYADH, Saudi Arabia (Thomson Financial) – The prospect of OPEC ramping up its oil output when it meets at Abu Dhabi in December has diminished after the oil cartel united behind the view that the fundamentals of supply and demand are not responsible for the spike in oil prices to near 100 usd a barrel.

While OPEC aimed to shy away from giving a clear signal on its short-term output intentions at its third-ever summit, Saudi’s King Abdullah, head of the cartel’s largest producer, indicated he was comfortable with the current price level, despite numerous calls for more oil in the market from consumer nations.

Price hawks Venezuela and Iran were always expected to express their satisfaction with prices close to the 100 usd mark, but King Abdullah’s view perhaps came as more of a surprise. He said oil prices, when adjusted for inflation, were little higher than those seen in the 1980s.
OPEC watchers said his comments have tipped the scales against another output increase in December, which most Western economies have been hoping could help bring prices down and alleviate pressures on the global economy.

King Abdullah’s comments, allied to those of OPEC Secretary General Abdalla Salem El-Badri, who said no production increase would come unless the organisation saw tighter supply as the reason for continuing high prices, suggest an output hike is less likely.

Saudi Arabia pushed through a production hike of 500,000 barrels per day at its last ministers’ meeting in September, despite widespread opposition within the organisation, which explains away the recent spike in prices to the actions of speculator, rather than the usual fundamentals of supply and demand.

OPEC’s largest producer now seems to share the view of other member states, though its close ties to the United States may see it soften its stance if prices fail to ease.

Oil is currently camped out just below the psychological level of 100 usd a barrel, having risen by more than 50 pct since the start of the year.
OPEC has blamed a string of factors for the rise, including geopolitical tensions, the influence of speculators on the international oil markets, and the historic weakness of the US dollar, which is currently languishing close to all-time lows against the major currencies.

Dollar weakness proved a major point of controversy at this year’s conference, after ministers’ concerns on the subject at a closed-door meeting ahead of the Summit were accidentally broadcast to journalists.

Iran’s tabling of a motion to stop the pricing of crude in dollars on the international markets — a move supported by Venezuela — was quickly slapped down by the Saudi delegation and others. The motion was later defeated at vote 10-2, reliable sources said.

El-Badri said after the meeting that the pricing of crude oil was an issue ‘for individual countries to decide’, not the OPEC secretariat.
The matter re-surfaced later when Iran’s President Mahmoud Ahmadinejad said in a press conference after the summit that diversification of crude pricing away from the dollar would be beneficial to all countries.

The matter is now likely to be hammered out by ministers through diplomatic channels in the coming months.

The question of the US dollar highlighted a growing disagreement within OPEC as to the role of the cartel. Venezuela’s President Hugo Chavez called yesterday for OPEC to re-establish itself as a political entity, and take on a more active role on the world stage.

Chavez also warned oil prices could easily hit 150-200 usd should the US be, ‘mad enough to attack Iran or threaten Venezuela’.
His position was later supported by Iran and newly rejoined cartel member Ecuador, with the latter potentially joining the ‘anti-US’ chapter of Venezuela and the Islamic republic.

The re-politicisation of the organisation was opposed by the other member states. The summit ended with OPEC reaffirming its commitment to providing the world with reliable supplies of oil.

In 1973, OPEC ceased production during the Arab-Israeli war, which sparked an oil crisis.

The summit also saw Saudi Arabia promise to give 300 mln usd to fund research in to climate change technology, while Qatar, Kuwait and United Arab Emirates ponied up with 150 mln usd each.

d.sheppard@thomson.com; jan.harvey@thomson.com;
andrew.macdonald@thomson.com

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