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Oil Jumps as OPEC Talks Fail

Source: Reuters 6/8/2011, Location: Middle East

Oil prices jumped after OPEC failed to reach a deal to increase output, raising fears of supply shortages later this year that could fuel a further price rally, imperiling the economic recovery.

After several hours, the Organization of the Petroleum Exporting Countries' talks broke down as Saudi Arabia failed to convince other members to lift production, as had been expected since last week. However, further gains in the oil prices were limited by expectations that the world's top exporter would unilaterally boost output anyway. In Vienna, OPEC officials said they hoped the group would meet again in three months time after what Saudi Oil Minister Ali al-Naimi described as "one of the worst meetings...ever".

"It came as a surprise. It is bullish for prices. If you look at demand, it will be very robust in the next months and there is a big need for extra OPEC oil," said Amrita Sen from Barclays Capital.
"It will be important to see if the Saudis are willing to supply more, it will matter a lot. Otherwise the market will be very tight," she said.

Crude fell from earlier highs after a White House spokesman said current oil supply levels are not meeting world demand and that President Barack Obama was keeping open the option of using U.S. strategic oil reserves but that no decision had been made.

London benchmark Brent crude rose $1.25 to $118.03 by 2:43 p.m. EDT, off earlier highs of $118.59. U.S. light crude settled $1.65 higher at $100.74 a barrel, off earlier highs of $101.89. U.S. gasoline futures weighed on the complex, sliding 0.21 percent.

Prices also felt some pressure immediately after the release of U.S. weekly oil inventory data. A reported 4.8 million barrel drop in crude stocks was offset by a 2.2 million barrel rise in gasoline inventories, bigger than expected and raising concerns about eroding demand in the world's top consumer.

A sizable drop in stocks at the Cushing, Oklahoma, delivery point for the U.S. oil futures contract following a week-long pipeline outage helped support the U.S. crude, narrowing Brent's premium to WTI to around $17 after hitting a record more than $18 earlier.

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