Opec output row fuels further rise in oil price

Saudi Arabia failed to convince the cartel to lift production quotas in order to stabilise prices and aid the global economy.

In a politically charged meeting, the world's largest oil producer was out-voted by a number of countries unsympathetic to the United States.

Saudi oil minister Ali al-Naimi said: "We were unable to reach an agreement- this is one of the worst meetings we have ever had."

Naimi said Opec's four Gulf Arab countries proposed the 12-member group increase output by 1.5 million barrels, to 30.3 million barrels a day, including Iraq which is not bound by an Opec quota.

But they were left isolated by a majority of seven - Libya, Algeria, Angola, Ecuador, Venezuela, Iraq and Iran - who wanted to keep production unchanged. Nigeria's position was not known. Brent crude rose more than $1 a barrel to above $118.

However, markets took the news in their stride, as Saudi Arabia, the only country with significant spare capacity, is expected to raise output unilaterally.

Earlier in the week, a Gulf official said Saudi was already raising output in June by 500,000 barrels a day.

Mike Lenhoff, an economist with Brewin Dolphin, said high oil prices had already done damage to the global economy this year. But he said a slowing of economic growth in the developing economies such as China, and a probable slowdown in the US, would bring some downward pressure on prices. "On the other hand, if oil prices do resume their upwards trend, then that's unambiguously bad news," he said.

He said that would squeeze real incomes and therefore spending, and could ultimately push the world's major economies back into recession - which would also be bad news for the oil companies.

Saudi Arabia has generally acted to stabilise oil prices since the spike and subsequent collapse in price in 2008.

As the largest producer by far, it has also generally been able to dominate Opec, but analysts said that the political turmoil in North Africa and the Middle East had led to acrimony among some members of the group.

IHS analyst Samuel Ciszuk said politics - as well as a differing view on whether global demand for oil was likely to rise or fall - was behind Opec's impasse.

He said: "At times of heated politics and ideological debate, Saudi struggled to dominate as much as it could have given its size vis-a-vis others in Opec."

Gulf Arab producer Qatar has given support to Libyan rebels fighting the government of the country's leader, Colonel Mummar al-Gaddafi.Meanwhile, Saudi Arabia has angered Shiite Iran by using force to support the Sunni Bahraini government in suppressing a Shiite rebellion.

This time those members in Opec politically opposed to the United States - led by Iran and Venezuela - found enough support to block Riyadh.

The International Energy Agency, which forecasts that higher production will be needed this year to meet demand, said yesterday: "We have noted with disappointment that Opec members were unable to agree on the need to make more oil available to the market."