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OPEC fails to reach an agreement

Oil prices will rise in the second half of this year, OPEC ministers said on the 2nd of June, before a meeting in Austria intended at setting a production limit ended without agreement.

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“$50 is the new $100.” This was the adroit summing up of the OPEC mind set from The Times, following the group’s bi-annual trek to the InterContinental Vienna last week.

In fact with prices up 80% over the past few months from 13 year lows, members emerged perhaps not exactly arm in arm, but talking brightly of unity, confident in the group’s future. Even the representative from Nigeria told reporters that the market was “doing fine.”

Khalid al-Falih the new oil Minister from Saudi Arabia said he was assured that “the worst is clearly behind us” and that prices would continue to rise – so long as OEC output remained broadly stable. On that matter, while there was no agreement on the cap, al-Falih dampened fears of a production battle, the likes of which were waged against shale producers, by stating there would be no “shock to the market in any way”. In fact he attempted to make the issue of no cap a non-matter, by telling reporters, “Whether we achieve that (production stability) through a hard freeze and a hard cap or just better stewardship and action by individual producers is really irrelevant.”

The fly in the ointment is Iran which is steadfastly opposing any effort to curb its much-anticipated return to production levels enjoyed pre-sanctions. The fifth biggest producer is instead calling for country-specific caps. Where once you’d have watched fireworks explode between the Kingdom and the Republic, now we saw a version of the Etente Cordial, with al-Falih in a conciliatory mood and Zanganeh refraining from his more colourful observations of Saudi-led OPEC plans.

“I am not against the ceiling but what’s the point of a ceiling without a country quota?” asked Zanganeh. “OPEC says it will produce 30 million b/d. How much for each country? When we set the 30 million b/d ceiling, and somebody produced more, you should be able to hold them responsible. You should be able to control and monitor and question them why they exceeded the production. And everybody should comply with it.”

The focus from the start, the media was told, was not the cap (after al-Naimi failed to get that agreement in April, al-Falih was never going to attempt it) but selecting a new general-secretary. That was achieved with so little fuss the meeting was concluded almost before the jets were refuelled .The honour has gone to the Nigerian Mohammed Barkindo who received unanimous approval to be appointed as secretary-general, a move that ended years of argument. It will take place in August (and will actually be his second time in the role, though when he first served in 2006 he was ‘acting’ general secretary). One man was responsible for this – Dr Ibe Kachikwu – who when he was appointed as Minister of state for Petroleum travelled between Saudi Arabia, Iran, the UAE and Qatar to lobby on behalf of his countryman. He made it his mission, quite publicly, to attempt tp persuade Iran to hold back from flooding the market with oil, “I will be talking with Iran’s oil minister on that,” he advised reporters. “Maybe, hopefully, by the first or second quarter of next year we will begin to see how that statement can now embolden us to go and begin address removing the 1.5mbpd production that is lying in the market internationally.”

It might all appear very friendly on the surface, but scratch a little – there is still much at work within OPEC to bring in its troublesome neighbour.