Opening address to the 132nd Meeting of the OPEC Conference

No 14/2004
Vienna, Austria
15 Sep 2004

by HE Dr Purnomo Yusgiantoro, President of the Conference and Minister of Energy and Mineral Resources for Indonesia

Excellencies, ladies and gentlemen,

Welcome to the 132nd Meeting of the OPEC Conference. This is the second of our twice-yearly Ordinary Meetings and so we shall be devoting a significant amount of our time to routine matters affecting our Organization, in addition to examining the present unsettled situation in the international oil market. Let me begin, however, by extending a special welcome to HE Dr Thamir Ghadhban, the Minister of Oil for Iraq, who is attending our Conference for the first time, as Head of his country’s Delegation.

Since we last met as an Extraordinary Conference in Beirut on June 3, oil prices have reached record levels, in nominal terms, with OPEC’s Reference Basket price rising above US $40 a barrel for the first time since this yardstick was introduced in January 1987. This has happened in spite of the fact that, throughout, the market has remained well-supplied with crude and fundamentals have been sound.

We see a combination of factors as being responsible for the high prices and accompanying volatility. There have been: higher-than-expected oil demand growth, especially in China and the USA; geopolitical tensions; and refining and distribution industry bottlenecks in some major consuming regions, coupled with more stringent product specifications. Combined, these factors have led to unwarranted fears about a possible future supply shortage of crude oil, which, in turn, have resulted in increased speculation in the futures markets, with substantial upward pressure on prices. We believe that this may all be adding about $10–15/b to the price of a barrel of crude.

OPEC has no control over factors like speculation, geopolitical tensions and domestic decisions made by foreign governments. Nevertheless, we are doing everything we can to restore order and stability to the market, with reasonable prices that are acceptable to producers and consumers alike, as well as being compatible with steady growth in the world and domestic economies.

As you know, in Beirut, we agreed on a big two-phase increase in our production ceiling, raising it by 2.0 mb/d to 25.5 mb/d, with effect from July 1, and by another 500,000 b/d to 26.0 mb/d, with effect from August 1. We took this decision, even though we knew there was plenty of crude already in the market and that our Member Countries were already pumping out levels of crude well above our previous ceiling of 23.5 mb/d. We believed that, as well as the actual physical fact of agreeing to this big increase in supply to the market, our action would also send a powerful psychological signal that OPEC was ready to act in order to help bring prices down. Since then, OPEC has been true to its word and continued to ensure the maintenance of a sufficient flow of crude oil to the market. This has seen a gradual rise in supply.

In view of the unexpected high rise in demand and the present volatile state of the market, some people have been expressing concern about production capacity. Will supply be sufficient to meet demand over the next year or two? At the present time, OPEC has spare production capacity of around 1–1.5 mb/d, which would allow for an immediate additional increase in production. Furthermore, in response to the expected demand growth, Member Countries have plans in place to further increase capacity by at least 1 mb/d towards the end of this year and on into 2005. In addition, plans for additional capacity expansion are available and could be enacted soon; however, this capacity would, typically, become available around 18 months after commencement of this process.

However, there is a word of caution here, for times like these, when prices are far above normal equilibrium levels, as a result of abnormal market pressures, and when the impact of such pressures is exaggerated by speculation. For, once there is a significant easing of some of these pressures — such as a sudden, unexpected relaxation of geopolitical tensions — then the crude price could, in turn, spiral down rapidly. Remember that speculation cuts both ways. Thus, any form of action OPEC takes at any time must be devised with such a contingency in mind. There is a fine line between reaction and over-reaction.

Such matters as these will be discussed in depth at this Conference, with the overriding priority being a quick return to order and stability, with reasonable prices. All our Member Countries are intent on achieving this objective. However, this is not just a task for OPEC. It is also the responsibility of all producers. We all stand to gain from a stable, orderly oil market. Therefore, we once again call upon non-OPEC producers to cooperate with our Organization’s market-stabilisation measures. We are pleased to welcome to this Conference high-level officials from six non-OPEC oil-producing countries — Angola, Egypt, Mexico, Russia, Sudan and Syria. Their presence underlines the importance their Governments attach to constructive dialogue and cooperation with OPEC and its Member Countries.

We are also pleased to note that non-OPEC will be well-represented at the OPEC International Seminar, which takes place over the next two days elsewhere in this city. The theme of the seminar is 'Petroleum in an Interdependent World', and it will examine the principal challenges facing the industry in the early 21st century. It is as important for us to ensure that the future needs of the market are met in a full and timely manner, as it is to handle the present situation. They do, after all, form part of the same time continuum.

Excellencies, ladies and gentlemen,

Thank you for your attention.