'I can't predict the break-up of Opec,' said Peter Gignoux, director of Smith Barney, Harris Upham, the US investment bank. 'But it has truly managed to bungle things.'
Ecuador decided to leave the cartel to save dollars 4m (pounds 2.3m) a year membership and travel costs and give it the freedom to increase production. Ecuador wants to double production from 300,000 barrels per day, but would not be allowed to under Thursday's agreement, which froze total production at 24.2 million bpd in the fourth quarter of the year.
Ecuador's president, Sixto Duran Ballen, said: 'Membership in OPEC has meant various annual costs without bringing major benefit to the country. Countries like Norway, Britain and Mexico, which are selling their oil in significant quantities, are not in Opec. Their exclusion has not caused them any harm.'
Although Ecuador's departure is not economically important in the short term, it is politically embarrassing. 'It's absolutely bad public relations losing a full member like that,' Mr Gignoux said. Geoff Pyne, of UBS Phillips & Drew, said: 'If Ecuador creates a precedent and other countries leave, the oil price will eventually go down.'
The meeting, which the industry assumed would be harmonious because supply and demand are roughly in balance, was also marred by Iran's refusal to agree to the production limit. Tehran radio quoted the Iranian oil minister, Gholamreza Aqazadeh, as saying that he rejected Opec's decision and that Iran would regulate its production according to the market. Iran has been rebuilding production since the end of its war with Iraq. Mr Aqazadeh said that it was producing 4 million bpd and wanted to increase this to 4.5 million by next March.
The Iranians have been keen either to force the price of oil up or, failing that, to win a bigger share of Opec production. Mr Aqazadeh said: 'The Geneva conference was a good opportunity for Opec to stabilise production and to achieve the dollars 21-per-barrel marker price. Unfortunately, the Opec members are not serious when it comes to increasing prices,' which was why Iran had decided to ignore the agreement.
The markets were so unimpressed by what Mr Gignoux called the 'sheer incompetence of the handling of the meeting' that they responded by marking prices down yesterday. Brent crude for November delivery was down 3 cents, while the US market reduced the price of November light sweet crude by 13c. Observers believe that the squabbling at the Opec meeting is disguising real problems to come. Kuwaiti oil is now coming back on stream, with Kuwait's production on course to reach 1.5 million bpd by the end of the year. At some stage, Iraqi oil will also become an issue for the organisation.
Meanwhile the cartel's officials have learned the dangers of bringing members together when there is not much to talk about. 'Opec would have been better off not having a meeting,' Mr Pyne said.Reuse content