OPEC Upstaged by Qaddafi in Most-Hostile Meeting Since Gulf War

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 that 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 ended last week at $100.22 on the New York Mercantile Exchange. They traded as high as $113.93 a barrel on April 29, the most in 2 1/2 years.

Qaddafi and his Libyan opponents may dispatch rival envoys to this week’s meeting. 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.

‘Informal’ OPEC Consensus

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.

Since the group 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 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.”

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. Continued…