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

No 12/2004
Vienna, Austria
22 Jul 2004

Ladies and gentlemen, Welcome to the OPEC Secretariat.

I have called this press conference today, to make some brief remarks about the current state of the international oil market and to give you an opportunity to put your questions to me about this and other related topics.

As you know, OPEC took a decision in Beirut on June 3 to hold an Extraordinary Meeting of its Conference here in Vienna yesterday. However, last week, we decided to cancel the Conference, after consultations among our Oil Ministers on recent market developments and the supply/demand outlook had made it clear to us that market conditions were essentially unchanged since our meeting in Beirut.

On that occasion, the Conference decided to increase OPEC-10’s production ceiling in two stages — by two million barrels a day to 25.5 mb/d, with effect from July 1, and by a further 500,000 b/d to 26.0 mb/d, with effect from August 1. This would ensure adequate supply, send a clear signal of OPEC’s commitment to market stability and to maintaining prices at acceptable levels to both producers and consumers, and support continued, robust, global economic growth.

Recognizing that our Member Countries had already increased supply to the market in line with stage one of the Beirut agreement, our Ministers, in their discussions last week, reaffirmed their decision to implement stage two, i.e. the additional 500,000 b/d increase, with effect from August 1. It was not necessary to come to Vienna to reaffirm this decision. As it stands, based on the Secretariat’s assessment, OPEC-10 is currently producing some 2 mb/d above the agreed ceiling. This should not be seen as a violation of our production agreement, but instead as a positive response by our members to the current market situation.

We took our decision in Beirut in the light of the prevailing high, volatile prices. We identified the main reasons for these as being: the robust growth in demand in the USA and China, which had not been fully anticipated; geopolitical tensions; and refining and distribution industry bottlenecks in some major consuming regions, coupled with more stringent product specifications. Combined, these factors led to unwarranted fears about a possible future supply shortage of crude oil, which, in turn, resulted in increased speculation in the futures markets, with substantial upward pressure on prices.

Although the price of OPEC’s Reference Basket fell by more than $3 a barrel in the weeks following the Conference, they began to rise again at the beginning of this month, indicating that the principal elements that concerned us in Beirut are still with us today, in what has continued to be a nervous, sensitive market. As we all know, supply and demand fundamentals are sound at the present time. The market remains well-supplied with oil, and this is very much due to the fact that OPEC, which is producing at close to capacity, has been true to its word and made significant increases in output.

In addition to opening their taps in response to market demand, OPEC Member Countries are also investing vast resources to increase production capacity by an expected 2.5–3 mb/d in the short term, depending on the call on OPEC oil.

Also, let me make it absolutely clear that the Organization does not wish to see prices rise further, despite the weaker US dollar, a fact that was noted by the US Federal Reserve Chairman, Alan Greenspan, a couple of days ago.

We in OPEC accept that this is a challenging time in the oil market, with the unusual, powerful combination of forces that are currently dominating market activity and adversely affecting its equilibrium. However, we remain firm in our resolve to continue to closely monitor market developments and to do everything we can to restore prices to reasonable levels, that are acceptable to producers and consumers alike — and to keep them there. We successfully operated our price band mechanism for three years and we have every intention of ensuring its return to full effectiveness as soon as we can — but this is, of course, difficult in the present exceptional circumstances.

However, as we have said on many occasions in the past, to be fully effective, our decisions require the full support of other parties in the market, principally non-OPEC producers, but also, of course, the international oil companies, financial institutions and other important intermediary bodies. While welcoming the enormous progress that has been made in this regard in recent years, we nevertheless believe that it is more important than ever in the current situation that comprehensive, effective dialogue and cooperation are forthcoming at all times. We all stand to gain from a stable, orderly oil market.

Ladies and gentlemen,

At this point, I will conclude my brief remarks to you about the current state of the oil market, since I am sure you have many questions to ask me!

Thank you for your attention.