OPEC producers on Tuesday said they feared an expected deal this week to hoist crude output limits may fail to quell an escalating world oil price scare.
The Organization of the Petroleum Exporting Countries, meeting in Beirut on Thursday, is considering lifting supply quotas by 2-2.5 million barrels daily, 8-11 percent.
But heightened concerns over political instability in the cartel’s leading producer Saudi Arabia, following a weekend attack claimed by Al Qaeda, is spoiling OPEC efforts at toppling prices from heights that could hurt world economic growth.
U.S. oil prices shot to a new 21-year high of $42 a barrel, up $2.12, after militants killed 22 in a Saturday attack on Western oil company offices in Khobar, eastern Saudi Arabia.
Saudi Oil Minister Ali al-Naimi, arriving in Beirut, said OPEC would “do its best to make the fundamentals right.”
But his cartel counterparts warned that making sure supply meets demand may not be enough to calm fears now beginning to border on panic in world oil markets.
“A supply increase will not help lower prices,” said Iranian Oil Minister Bijan Zanganeh.
Qatari Oil Minister Abdullah al-Attiyah said the “fear factor” surrounding a possible disruption of supplies from the Middle East was inflating crude by $9 a barrel.
“The Saudis are saying that all they can do is make sure there’s enough supply. It goes to show how impotent OPEC is at the moment because there’s really nothing much wrong with fundamentals,” said Nauman Barakat of brokers Refco in Nw York.
“OPEC only has limited scope to do anything about the price,” said veteran OPEC analyst Geoff Pyne. “There is no real shortage of supply so the best they can hope for is to have some psychological impact.”
Production already is running at least 2.3 million barrels daily above formal quota limits of 23.5 million bpd so an increase in production allocations will only legitimise existing output.
Saudi Arabia, the only producer with significant spare capacity, has already vowed to pump nine million barrels daily, well in excess of any official new quota it is likely to be granted.
That is causing friction in OPEC ranks when traders are looking for a show of unity from the cartel that controls half the world’s oil exports.
There is some talk in OPEC that its best option for bringing down prices could be to suspend quota restrictions, officially granting Saudi the freedom to pump at will.
But such a move is meeting heavy resistance.
“It’s possible but I think there will be a lot of opposition to giving Saudi carte blanche to do what it likes independent of the rest,” said one OPEC delegate.