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Energy / ENERGY

OPEC Refuses to Increase Production Output

photo of Olga Belogolova
June 8, 2011

After difficult and lengthy talks in Vienna, members of the Organization of Petroleum Exporting Countries were unable to agree Wednesday on ramping up oil production, something that they have been repeatedly asked to do by the global community and the intergovernmental International Energy Agency.

The decision from the 12-member group came during what Saudi oil minister Ali Al-Naimi called "one of the worst meetings we've ever had," according to Bloomberg News, which reported that crude prices went up 2.7 percent in 20 minutes in New York after the meeting concluded.

While Saudi Arabia and three other countries proposed raising output by 1.5 million barrels a day in order to stabilize oil markets, countries such as Iran and Venezuela led the political standoff, saying that the market is just fine.

 

In the United States, Republican strategists, who have hammered the Obama administration and Democrats on domestic oil drilling, leaped on the news.

“This is the worst administration with respect to energy production, with respect to energy policy,” Thomas Pyle, president of the Institute for Energy Research, told National Journal Daily.

“They are deliberately creating situations where an event like today has real ramifications for it,” Pyle added, arguing that President Obama needs to speed the permitting process for offshore drilling as well as the Keystone pipeline, among many other initiatives, to ensure that the U.S. is not “hostage” to the political whims of the powerful oil cartel.

Lawmakers on both sides of the aisle have also jumped on the news.

As gasoline prices have retreated from May's national average of near $4 a gallon, the issue has also receded as a top campaign talking point.

Few in Congress have mentioned energy prices after several messaging votes in the House and Senate about speeding and increasing offshore drilling.

GOP strategists said as recently as Tuesday that they planned to focus campaign activity on candidates’ positions on the deficit and debt ceiling, but OPEC’s move will likely bring the gas price and offshore drilling debate back to the forefront.

“America can become less dependent on dangerous sources of foreign energy if we safely and responsibly develop the resources we know we have here at home. Today is a perfect example of that,” House Natural Resources Chairman Doc Hastings, R-Wash., said in a statement on Wednesday.

“We shouldn’t be going through this hand-wringing every three months,” Robert Dillon, spokesman for Senate Energy and Natural Resources ranking member Lisa Murkowski, R-Alaska, told National Journal Daily.

“Nobody is saying we’re going to be energy independent, but we ought to be taking responsibility,” he added.

Democrats also played up the issue to argue that Obama should prepare to use the Strategic Petroleum Reserve.

The top Democrat on the Natural Resources Committee, Rep. Edward Markey, D-Mass., said OPEC has thumbed its nose at the United States and western nations.

“This is a clear sign that America must engage in a long-term plan to break our ties to this OPEC-controlled market, and prepare to deploy America’s oil reserves now to head off an economic collapse from continued high gas prices,” Markey said in a statement.

But experts have repeatedly said that neither option will actually solve the problem.

Although the United States, the world’s largest petroleum consumer, is the third-largest crude oil producer, about half of the petroleum it uses is imported, according to the Energy Information Administration.

OPEC countries produce about 42 percent of the world's crude oil and about 58 percent of the crude oil traded internationally, while America is home to only 1.6 percent of the world’s proven oil reserves.

Nevertheless, the IEA—which last month warned that a tightening market and price increases could undermine economic recovery and called for OPEC to increase production—noted disappointment at the meeting’s conclusion and urged “key producers to respond accordingly” by increasing supply.

But in the same way that increased production would not move the needle, tapping oil reserves to increase supply wouldn’t do much to lower prices.

IHS CERA Chairman Daniel Yergin told National Journal Daily earlier this year that there is no actual shortage of supply, but said that the market and prices reflect fears and political risk.

Coral Davenport contributed contributed to this article.

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