The price of benchmark U.S. oil rose Tuesday ahead of a key OPEC meeting that could become a showdown between Saudi Arabia and Iran over how much oil the organization is producing.
West Texas Intermediate crude rose 62 cents to finish at US$83.32 a barrel Tuesday in New York.
Brent crude, used to price international varieties of oil, fell 86 cents to US$97.14 a barrel. Brent’s price has fallen about 23 per cent since reaching a 2012 high of US$126.22 in March.
Saudi Arabia, OPEC’s biggest producer, has raised output to almost 10 million barrels a day in an effort to push Brent down toward US$100 a barrel, a level the Saudis believe the global economy can tolerate. Iran wants a higher price because its oil exports have been curtailed by western sanctions imposed because of a dispute over its nuclear program.
An OPEC report published Tuesday showed that its production was just short of 33 million barrels a day in April. That’s almost three million barrels more than the organization’s overall quota and the highest in four years. Iran will likely argue that production needs to be cut when the Organization of Petroleum Exporting Countries meets Thursday in Vienna.
Other OPEC members could support Iran’s call for lower production. Venezuelan President Hugo Chavez said last week that OPEC members should maintain what he called a “fair level” of oil prices, which he said was around US$100 a barrel.
Tradition Energy analyst Addison Armstrong said that Iran’s economy already is reeling from the sanctions and that the Saudis “can use the falling oil prices as a way to keep Iran in check, which is one of their overriding political goals.”
The U.S. and other world leaders believe Iran may be working on a nuclear bomb, an allegation that Iran denies. The economic sanctions in place make it tougher for Iran to sell its oil by blocking financial transactions with major Iranian banks.
At least 18 countries have cut back on Iranian oil imports in wake of the sanctions. And Iran is also facing a European Union oil embargo starting July 1.
U.S. officials said Iran’s oil exports have declined from about 2.5 million barrels a day last year to between 1.2 and 1.8 million barrels a day, greatly reducing a key source of revenue for Tehran. Iran is participating in talks about its nuclear program but so far hasn’t made any concessions.
Oil trader Stephen Schork said the Iranians “really are in a precarious state.”
“They’ve overplayed their oil card and not realizing, or not thinking, the West would call their bluff and the West has called their bluff. Now, they’re just trying to save face,” he said.
Platts, the energy information arm of McGraw-Hill, said that Iraq has moved ahead of Iran to become OPEC’s No. 2 exporter.
The OPEC meeting comes against the backdrop of weaker economic growth in both the U.S. and China, the world’s biggest consumers of oil, and a debt crisis in Europe. This weekend’s election in Greece could determine if that financially troubled country will leave the euro currency union.
Separately, the U.S. Energy Information Administration predicted that the price of West Texas Intermediate crude will average about US$95 a barrel throughout 2012 and remain relatively flat in 2013, citing slower economic growth forecasts.
In other trading, heating oil fell 1.42 cents to end at US$2.6215 a U.S. gallon (3.78 litres), gasoline dropped 0.64 of a cent to US$2.6502 a gallon and natural gas rose 1.4 cents to US$2.232 per 1,000 cubic feet.
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