Press Statement by the OPEC Secretary General

No 2/2009
Vienna, Austria
06 Mar 2009

OPEC’s attention has been drawn to a number of recent comments by the IEA, to which I would like to respond.

The IEA has said that the world would get a $1 trillion economic stimulus if oil prices stay at around $40/barrel through 2009.

We all want to see the global economy back on its feet as quickly as possible. The moderation of prices since last summer’s extreme certainly offers some short-term relief to consumers. However, if the current low price environment persists, this short-term relief may not translate into long-term gain. We need to remember that the short-, medium-, and long-term timeframes are all interlinked. Oil prices need to be at levels to help sustain economic growth, by supporting longer-term energy industry investments across the board. Each energy source, each technology, and each project, has a price when it is viable; and a price when it is not. Low oil prices inevitably mean less investment.

The IEA has said that a lack of investment now by OPEC threatens a supply crunch around 2013, and a price surge.

We agree with the statement that a failure by the industry to invest will result in a supply crunch by 2013 and beyond. However, it is also important to recognize that the IEA’s comments are confusing and misleading. Whilst asking for prices to remain at $40, it also wants investments to be made that are not economically viable at these prices. This is widely acknowledged by the industry at large. It is a short-sighted view. OPEC remains committed to ensuring a stable, sound and sustainable oil industry, and upholding its investment plans when it makes business sense.

The IEA has asked OPEC to “watch carefully the market and make proper decisions” before cutting supply.

OPEC always makes informed decisions. They are taken following careful analysis of all the various inputs, and in the interest of market stability. And this will be the case when OPEC meets again on March 15. It should also be noted that the IEA’s own demand forecasts have been continually revised down in recent months.

The IEA has encouraged the US to take advantage of lower oil prices by considering new taxes on fuel.

It is important to understand the possible market repercussions of such a move. Raising taxes can be to the detriment of both oil producers and consumers. From the consumer’s perspective, higher taxes translate into higher prices at the pump. This impacts individuals and does little to instill consumer confidence in the current economic climate. For producers, they create further uncertainty for long-term planning in an already distorted price environment and volatile market.

Abdalla Salem El-Badri
OPEC Secretary General