Opening address to the 135th Meeting of the OPEC Conference

No 4/2005
Isfahan, Iran
16 Mar 2005

by His Excellency Sheikh Ahmad Fahad Al-Ahmad Al-Sabah, President of the Conference and Minister of Energy for Kuwait.

Excellencies, ladies and gentlemen,

Welcome to the 135th Meeting of the OPEC Conference.

We are meeting here in Isfahan at the kind invitation of the Government of the Islamic Republic of Iran. Thank you very much, Your Excellency Bijan Namdar Zangeneh, for your Government’s generous invitation and warm hospitality and for the excellent facilities that have been made available to us. Clearly, these will make our visit as cordial and productive as possible.

The occasion, however, is saddened by the news of the second serious earthquake in the Islamic Republic in 14 months, which occurred in the south-east of the country late in February, and we express our deepest condolences to all those who suffered personal loss in that tragedy.

The last time the Conference met in Iran — one of the Founder Members of OPEC — was in early 1971, in the capital city of Tehran. That was, indeed, an historic occasion for our Organization. It occurred in the midst of protracted negotiations between six OPEC Member Countries and many leading international oil companies, which, ten days later, resulted in the signing of the Tehran Agreement. That agreement marked a major breakthrough for our Organization, when developing country oil producers, for the first time, acquired a major influence on the pricing of oil on world markets — oil that was extracted from within these countries’ sovereign territories.

For today’s Meeting, we have moved to the country’s second-largest city, Isfahan, which itself was once the capital city. At that time, several centuries ago, Isfahan was described as “half the world”. Well, there is an interesting connection here with our discussions today, since these will be focusing on the whole world!

Since we last met — six weeks ago in Vienna — some oil prices have risen to record levels, passing the US $49 a barrel mark for the first time for OPEC’s Reference Basket. However, while West Texas Intermediate, which is widely used as a marker by the international media, has exceeded $54/b, it is still below the levels reached last October. These prices are a matter of much concern to OPEC, since they are reaching levels that are not sustainable and thus adding to the volatility in the market. Excessive prices in either direction — high or low — do not benefit either producers or consumers in the long run, and OPEC makes every effort to keep them at reasonable, acceptable levels.

The high prices have been caused by the usual seasonal factors — in particular, the recent cold spell in the Northern Hemisphere — as well as the expectations of continued strong demand, especially in China. Moreover, there have been supply concerns, following disruptions in the North Sea, the Gulf of Mexico and Iraq. And, once again, speculation has played a major part in reinforcing the recent upward price trend, just as it did in 2004, amplifying the impact of the geopolitical tensions, as well as the persistent downstream bottlenecks. Indeed, the increased activity of non-commercials, particularly from pension and index funds, has added to these pressures.

Nevertheless, global oil supply — particularly OPEC output — remains adequate to meet expected demand.

When we met six weeks ago, the forecasts then indicated that the market would remain in balance through the first quarter of 2005, and so we decided to leave our agreement unchanged. However, we temporarily suspended the price band, after recognising that its limits of $22–28/b were no longer realistic.

But clearly, the latest price developments have shown that a careful rethink is required about the current state of the market, which appears to have undergone some structural changes recently.

OPEC is doing everything it can to restore order and stability to the market, to the benefit of all parties. As you will recall, last year, in response to the persistent upward pressure on prices then, the OPEC Conference met a total of five times and increased the official production ceiling by, altogether, 3.5 million barrels a day. This contributed significantly to the subsequent easing of oil prices, with the Basket being close to a more moderate $35/b for much of December. At the same time, commercial OECD stocks built to around their five-year average.

Moreover, some of our Member Countries are speeding up the implementation of their capacity expansion plans, so as to enhance the Organization’s ability to cope with possible future supply disruptions. As a result, OPEC’s spare capacity is rising again and is expected to exceed 3 mb/d — or ten per cent — by year-end.

OPEC has the resources to meet the growing oil requirement that has been forecast for the early 21st century, and is committed to ensuring that the market remains well-supplied with crude at all times, at reasonable prices that are compatible with robust growth in the world economy. OPEC will maintain and develop sound investment strategies, and will ensure that these are put in effect, in a timely and sufficient manner, to provide the required production capacity for oil that is cleaner, safer and more efficient than ever before. This includes ensuring that enough spare capacity is available to smoothly cope with unexpected surges in demand, whenever they occur.

However, let me emphasise that all of this is a shared responsibility. Our market-stabilisation measures will only be truly effective if they receive the full support of other oil producers, the international oil companies and all other interested parties in the market. Much progress has been made in this regard in recent years; we welcome this and look forward to a continuation of this in the future.

Excellencies, ladies and gentlemen,

Let me close by stressing that there is ample oil to support sustained economic growth across the world. Just as oil fuelled the economic growth of today’s industrialised countries in the last century, it should have the same important role to play in the emerging economies of Asia, Africa and Latin America. There are many challenges facing us as oil producers, including the need for a careful assessment of the structural market changes taking place and their implications for OPEC’s policies. I shall continue to do everything I can during my period as OPEC President to help the Organization address them.

Thank you.