The Organization of Petroleum Exporting Countries (OPEC) met earlier this month and for the first time in two decades, failed to reach an agreement on oil production targets. The June meeting in Vienna collapsed in disarray, with long-time Saudi Oil Minister Ali Al-Naimi calling it “one of the worst meetings we’ve ever had.”
OPEC member nations, led by Iran, which this year holds the revolving presidency post, vetoed Saudi Arabia’s proposal to raise oil output levels. In a move of defiance, Saudi Arabia announced it will unilaterally raise its production rates to 10 million barrels a day in July, up from 9.3 million barrels.
Saudi Arabia’s move comes at a time when the world market is under strain. The fighting in Libya has eliminated 1.3 million barrels from the world market, and turmoil in Yemen and Syria has removed another 300,000. The fragile global economy may suffer if left to deal with sustained high oil prices, and Saudi Arabia has been under international pressure to take action to stem the rising tide.
However, Saudi Arabia’s “cushion” of 2.5 to 3 million barrels a day of spare capacity might wear thin if unrest continues across the Middle East/North Africa region. In short, despite Saudi action, many analysts say high oil prices are likely here to stay.