OPEC ministers are set to meet in Vienna today to discuss contentious output targets as their wells pump the most oil in three years. The record numbers have exacerbated the tense relationship between Saudi Arabia and Iran, at odds over how high oil prices can go before OPEC should unlock supplies. Yesterday Brent crude, the European benchmark, was trading at US$107 a barrel.
The kingdom, along with Libya's recovering industry, led the rise in OPEC's production levels last month to more than 30.6 million barrels per day (bpd), according to the International Energy Agency.
Saudi Arabia, the holder of most of OPEC's spare capacity, now accounts for 31 percent of the group's output. The UAE and Qatar also increased production.
Yesterday Rafael Ramirez, the oil minister of Venezuela, said Gulf nations need to reduce production. "The Gulf countries put the additional oil in the market, and now they have to take it off the market," Mr Ramirez told reporters. "They have to remove the amount Libya lost and which it is now starting to produce again."
Meanwhile, Iran said oil prices could drop unless members reduce production and separately announced it would conduct a military practice for closing the Strait of Hormuz, the waterway used to ship 40 percent of the world's oil supply that narrows to 54 kilometres at its slimmest point. Iran's oil industry has been placed under western sanctions for its suspected nuclear weapons programme and faces the prospect of a harsher EU oil embargo.
"Soon we will hold a military manoeuvre on how to close the Strait of Hormuz," Parviz Sorouri, a member of the Iranian parliament's National Security and Foreign Policy Commission, was quoted as saying on Iran's state Fars News. "If the world wants to make the region insecure, we will make the world insecure." Both the Saudi and Iranian sides say they wish to reach consensus at today's meeting.
Memories are still fresh of the group's contentious meeting in June, when a visibly drawn Abdalla El Badri, the OPEC secretary general, emerged from hours of discussions with ministers to announce the group had failed to reach agreement. They had left their output target unchanged since it was set in 2008, when members shrunk the quota to 24.8 million bpd to combat declining oil prices. "I think they have to agree this time because they need to be credible," Chakib Khelil, the former Algerian oil minister, told Reuters.
The 11 members under quota - Iraq is an exception - pump about 2.8 million bpd in excess of the target. Besides the question of bringing the group's formal target in line with actual pumping levels, OPEC will also need to decide when to place a quota on Iraq. Since the 1980s, when the Iran-Iraq war crippled production, Iraq has been exempt from the quotas. With western sanctions and the US invasion behind it, Iraq has brought pumping levels back up to 2.7 million bpd.
Iraq hopes to boost production to 4.5 million bpd and join the quota system by 2014, Falah Al Amri, the director of Iraq's State Oil Marketing Organization, told Bloomberg in October. That places a threat on other members' market share, say analysts.