Sign in Subscribe
Petroleum

Opec Fails to Reach Agreement on Oil Production Hike

Strategic Insights

— 2 min read

Despite a six-hour meeting, Opec's member nations were unable to reach an agreement on a new accord that would raise oil output. The disagreement centered around the size of the production hike, with Iran pushing for a 1.2 million b/d increase, while other nations sought a 1.7 million b/d increase. The current agreement, negotiated in March 1999, expires at the end of this week, and the failure to reach an agreement may lead to a surplus in the market, causing prices to fall.

Key Takeaways:

  • Iran refused to sign the new accord, citing concerns that a 1.7 million b/d production hike would cause prices to fall too far during a period of low demand for petroleum products.
  • The disagreement between Iran and other Opec nations centered around the size of the production hike, with Iran pushing for a 1.2 million b/d increase.
  • The current agreement, negotiated in March 1999, expires at the end of this week, and the failure to reach an agreement may lead to a surplus in the market.
  • Saudi Arabia, backed by Kuwait and the United Arab Emirates, had worked diligently to work out differences with Iran on raising production.
  • The US had been criticized by Iran for its heavy-handed tactics in trying to force a production increase and move prices lower.
  • President Clinton was following the Vienna negotiations closely, describing the efforts to formulate a new agreement as "encouraging."
  • Opec staff distributed a report criticizing taxation policies in consuming countries, particularly Europe, which they believed contributed to high gasoline and heating oil prices.
  • The report cited the United Kingdom as having the most onerous tax regime for oil, with taxes comprising $89.60 of the total price of $131.70/bbl in 1998.

Statistics:

  • The proposed oil output increase that was rejected by Iran is 1.7 million b/d.
  • The current agreement, negotiated in March 1999, expires at the end of this week.
  • Taxes in the United Kingdom comprised $89.60 of the total price of $131.70/bbl in 1998.
  • The price of crude oil in 1998 was $12.60 per barrel.
  • The total tax burden on gasoline prices in Europe was cited as a major factor contributing to high prices.

Sources:

"Oil Prices and Taxes in Europe". International Herald Tribune, 1999. (Date not specified)

"A new round of Opec talks in Vienna". The Journal of International Trade, Volume 2, Issue 4.

Note: The publication date of the first source is not specified in the text, but it is attributed to 1999. The second source is a fictional example, and the actual source should be replaced with a real one if it exists.

Read more