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. Last Updated: 07/27/2016

NEWS ANALYSIS: OPEC Indecision Keeps Price of Oil On the Boil




LONDON -- OPEC dithering over another oil output hike has kept the heat under crude prices, defeating the aim of a much-heralded production increase, analysts said Thursday.


Struggles within the Organization of the Petroleum Exporting Countries about a Saudi Arabia output plan risks losing the cartel the credibility it won for recent deft market management, they said. Divisions in the group have emerged amid doubts about whether the world needs more physical supply and whether more than three or four in the 11-strong group can pump more oil.


But prices at $30 for Brent crude are only $1 lower than when Saudi announced July 3 that prices were too high and it was planning to raise output by 500,000 barrels per day. An increase would be in addition to a 3 percent supply increment agreed to at a June 21 meeting in Vienna of the cartel in its second hike since March aimed at cooling strong markets.


At the New York Mercantile Exchange, crude oil futures rose more than 3 percent Thursday. August delivery crude oil settled at $31.47 a barrel, surging $1.15 on the day.


While some may debate whether consumers need more crude, traders who set the price of world energy want a clear statement that more oil is on the way before they push markets lower. "We are waiting to hear what the clear Saudi policy is," said Bob Finch, head of trading at international oil trader Vitol SA. "It seems to be that OPEC is signaling a production increase but they are not really coming out with a definitive statement."


Buoyant prices now are slightly higher than when OPEC struck its latest Vienna accord and noticeably above an informal price target of $25 for a basket of OPEC crudes set at that gathering. Saudi's July 3 announcement showed the kingdom was ready to forsake hard-earned windfall earnings to ease the price pain hitting powerful consumers like the United States.


Wary of harming benign economic conditions driving energy demand growth, Saudi Arabia also appeared to have been swayed by U.S. pressure to lower record high U.S. gasoline markets in a politically-sensitive presidential election year. But the Saudi declaration has been followed by a series of inconclusive statements from others in OPEC suggesting action might be taken but giving no sign of when that might be.


The timing of any output move appears to have become hostage to a cartel tour by OPEC president Ali Rodriguez aimed at preparing for an OPEC summit in Caracas in September. The result has been a stream of cautious pronouncements that analysts say reflects the cartel's fear of repeating a price slump caused by an output hike agreed to in 1997.


Some in OPEC, including Venezuela, appear reluctant to up output, arguing that the high prices are due to nervousness in the U.S. market about gasoline and distillate stocks f not because of a real shortage of crude in the world market. Others say the real reason for Venezuelan reluctance is because the Latin American country has no capacity to up output and any increase would result in it losing market share.


But a delay will erode a large degree of OPEC's hard-won sway in the international oil industry.