Bloomberg News

OPEC Upstaged by Qaddafi in Most-Hostile Meeting in 21 Years

June 06, 2011

(Updates with Libya’s envoy named from seventh paragraph.)

June 6 (Bloomberg) -- OPEC’s decision on production quotas this week may be complicated by hostilities in Libya as members meeting in Vienna find themselves supporting opposing camps of a military conflict for the first time in 21 years.

Not since Saddam Hussein invaded Kuwait in 1990 has the producer group gathered with some nations giving financial and military support to a movement seeking to topple the government of a fellow member. While Libyan leader Muammar Qaddafi is trying to quash a rebellion in a country that holds Africa’s largest crude reserves, Qatar, Kuwait and the United Arab Emirates are backing the insurgents.

The conflict underlines the difficulties the 50-year-old organization, which accounts for about 40 percent of the world’s oil, may have in deciding production levels. Oil has gained 9.5 percent this year to trade at about $100 a barrel amid signs that the pace of the global economic recovery may be slowing. The Organization of Petroleum Exporting Countries will probably leave its output target unchanged on June 8, according to a Bloomberg survey of 30 analysts conducted May 24-31.

“Amid issues surrounding representation of Libya and oil prices correcting towards $100 a barrel, OPEC is likely to sit on the fence, deferring a decision on quotas for later,” Harry Tchilinguirian, the head of commodity-markets strategy at BNP Paribas SA in London, said in an interview on June 1. “This does not mean individual countries may not take discretionary steps to increase output. OPEC has yet to fill the gap in the market left by Libya.”

Saudi Increase Foreseen

Fighting in the North African country has blocked 1.4 million barrels a day. An OPEC delegate said on June 2 that producers need to boost supply by at least 500,000 barrels a day to meet demand. Saudi Arabia, the group’s biggest producer and de-facto leader, plans to raise output on its own by about 10 percent this month, according to Petroleum Policy Intelligence, a Winchester, U.K.-based industry researcher.

U.S. crude futures traded below $100 a barrel today on the New York Mercantile Exchange. They rose as high as $113.93 a barrel on April 29, the most in 2 1/2 years.

Qaddafi’s representative to this week’s meeting will be Omran Abu Kraa, a former minister of electricity, according to two people who knew of the decision and declined to be identified before an official announcement. His Libyan opponents are still discussing whether to send a representative, Jalal el- Gallal, a spokesman for the rebels’ National Transitional Council, said today by telephone from Benghazi, Libya.

Iran’s Minister Sacked

Iran, which holds OPEC’s rotating presidency, is sending the former head of its Physical Education Organization to lead the negotiations after President Mahmoud Ahmadinejad fired his oil minister on May 14.

OPEC will need to boost output to 29.9 million barrels a day to meet average demand this year because of “roaring” growth in China, the group said in its most recent monthly report. That’s 1 million barrels a day more than last month, according to data compiled by Bloomberg. The International Energy Agency said on May 19 that it saw “an urgent need” for more oil to help bring down high prices threatening economies.

While the group’s 12 members may not reach a formal agreement to increase quotas this week, “an informal pact to ramp up production, most likely by OPEC’s Gulf members as well as Nigeria, may emerge,” the IEA said in a May report. The agency, which advises oil-importing nations, said in April that “revisiting individual production targets may be difficult now,” amid tensions stoked by the Libyan conflict and a political crisis in the Persian Gulf state of Bahrain.

‘Personal Politics’

“Don’t be surprised to see personal politics mixing with economic reasoning,” Stephen Schork, editor of The Schork Report in Villanova, Pennsylvania, said today in an e-mail.

Venezuelan Oil Minister Rafael Ramirez said OPEC is unlikely to raise quotas. “We have to wait to discuss the situation in the market,” he said as he arrived today in the Austrian capital. “We believe at the moment we’re in balance.”

Two European banks took a different view today. The weak U.S. job market “should increase the pressure on OPEC to raise production quotas,” Commerzbank AG said in a research note. Barclays Plc said in a report that an increase in the group’s output target is “long overdue” to bring it closer to OPEC’s actual level of production.

Since OPEC last convened on Dec. 11, 2010, a wave of unrest has ousted rulers in Tunisia and Egypt and swept across the Middle East, home to more than half of the world’s crude reserves. Oil rose as much as 35 percent after Feb. 15, when protests in Libya began squeezing output from Africa’s third- largest producer to about 200,000 barrels a day.

Special Saudi Blends

Instead of calling for concerted OPEC action to replace Libyan volumes and calm markets, some Persian Gulf and West African members have increased output individually since March. Saudi Arabia has developed two blends of crude to match the quality of missing Libyan oil and is planning to add 1 million barrels a day with or without an OPEC agreement, Petroleum Policy Intelligence said on June 1.

“Saudi Arabia appears to have begun to ramp up crude oil production over the past month in response to the loss of Libyan supplies and growing demand,” Eurasia Group, a New York-based analysis firm, said in a May 31 report. “At this point, with only Saudi Arabia and the other Gulf producers holding meaningful spare capacity, formal OPEC decisions continue to be much less important than unilateral Saudi decisions.”

Saudi Oil Minister Ali al-Naimi arrived in Vienna today without making any public comments on the oil market.

Financing the Rebels

Qatar and the U.A.E. are the only Arab nations contributing aircraft to NATO’s campaign against Qaddafi’s four-decade rule. Kuwait has joined them in financing Libya’s rebels. Qatar is one of three countries to recognize the Benghazi-based rebel administration and has also supplied them with light weapons.

In OPEC-member Algeria, Abdelaziz Belkhadem, the minister of state and the personal representative of the nation’s president, denounced what he called “foreign interference” in Libya, the Xinhua news agency reported on June 4.

“No one wants to do business with the Qaddafis, and at the same time, OPEC can’t impose recognition of the rebel government, so most likely Libya will have no representation,” said Sadad al-Husseini, founder of Husseini Energy Co., a consulting company based in Dhahran, Saudi Arabia.

‘Sympathy’ for Libya

“The Saudis don’t like Qaddafi,” al-Husseini said. “Qatar, the U.A.E. and Kuwait are supporting the rebels. Only Algeria may have sympathy for Libya.”

Iran, OPEC’s second-largest producer, will be represented by Mohammad Aliabadi, who was appointed as acting oil minister, the ministry’s news website Shana said today. Ahmadinejad sacked the oil minister in a cabinet reshuffle and appointed himself as the ministry’s caretaker. The move was criticized by local industry experts and described on May 20 as “unlawful” by the Guardian Council, Iran’s top legal authority.

Iran holds the group’s presidency for the first time since 1975, when Venezuelan terrorist Ilich Ramirez Sanchez, better known as Carlos the Jackal, kidnapped OPEC officials in the secretariat building in Vienna and threatened to kill the Iranian and Saudi oil ministers.

“The meetings are not political -- they are business meetings to look at the oil market,” said Manouchehr Takin, an analyst at the Centre for Global Energy Studies in London. Takin worked at the OPEC Secretariat while Iran and Iraq were at war from 1980 to 1988.

“During the war, ministers may not have been cordial, but they were professional,” Takin said. “They may not have talked to each other during the breaks, but they shook hands at least.”

--Editors: Bruce Stanley, Mike Anderson

To contact the reporters on this story: Ayesha Daya at adaya1@bloomberg.net.

To contact the editor responsible for this story: Stephen Voss on sev@bloomberg.net.


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