Opening address to the 119th Meeting of the OPEC Conference

No 2/2002
Vienna, Austria
15 Mar 2002

by His Excellency Dr. Rilwanu Lukman, President of the Conference and Presidential Adviser on Petroleum and Energy, Nigeria

Excellencies, ladies and gentlemen,

Welcome to the 119th Meeting of the OPEC Conference, which is held, once again, at our Secretariat in Vienna. On behalf of Your Excellencies, I should like to extend a special welcome to His Excellency Sheikh Ahmad Fahad Al-Ahmad Al-Sabah, the Acting Minister of Oil for Kuwait, who is attending this Conference for the first time, as Head of his country’s Delegation. We look forward to his involvement in our discussions at this and other OPEC Meetings. We should also like to express our thanks to his predecessor, His Excellency Dr Adel K. Al-Sabeeh, and to wish him every success in the future.

“A week is a long time in politics,” a famous statesman once remarked. How appropriate such a statement would have been in today’s international oil market! If this Meeting of the Conference had been held, let us say, three weeks ago, it would have had a very different complexion to it. At that time, as we were approaching the end of a generally mild Northern Hemisphere winter, there were widespread fears about the already weak oil price structure coming under further sustained pressure from the predicted traditional downturn in the second-quarter oil demand. Prices, after all, had already fallen by around US $6–7 per barrel since the tragic events of September 11.

But now, as we stand on the threshold of the second quarter, we find ourselves in a situation where there are grounds for cautious optimism, with regard to the market’s near-term outlook. Prices have rallied over the past fortnight, with OPEC’s Reference Basket of seven crudes pushing past the psychological $20/b mark on 28 February for the first time since the second week of October — that is a period of four and a half months. They have since gone on to penetrate the lower limit of OPEC’s price band, of $22–28/b. Why has this happened?

The first reason is the high level of compliance by our Member Countries with the decision we reached at the end of last year, to reduce our output by an additional 1.5 million barrels a day, with effect from 1 January. Taken together with earlier OPEC agreements, this meant an overall reduction of 5 mb/d over the 11-month period beginning on 1 February 2001. The purpose of these measures was to prevent a damaging downward spiral in the oil price. Let us not forget, at this point, that OPEC has been prepared to act in both directions, in order to bring about a stable oil market, with fair and reasonable prices. In the year 2000, when there was excessive upward pressure on the price, OPEC increased output on four occasions, by a total of 3.7 mb/d, to bring prices down to reasonable levels, within our price band. Our actions were effective then, just as they have been effective now in the opposite situation.

The second reason for the brighter prospects for oil prices has been the support our actions have received from many leading non-OPEC oil producers. The agreement reached in Cairo in December, for an overall production/export cut of 462,500 b/d by non-OPEC producers, in support of OPEC’s cumulative 5 mb/d output reduction, had an immediate effect on prices; it prevented further falls and provided a base from which prices could strengthen as the economic outlook improved. The average monthly price of OPEC’s Basket rose from around $17.5/b in both November and December to $18.3/b in January and $18.9/b in February.

Even so, as is well known, seasonal factors lead to a drop in demand in the second quarter of every year. If the major producers do not maintain the present level of output, when stocks are still high and many smaller producers are increasing their activities, the market could again be flooded with crude and the impact on prices might, once more, be negative. This is why OPEC has been calling for non-OPEC producers to maintain their support until June. The recently expressed willingness of these producers to do this is already sending a favourable signal to the market. This has been greatly welcomed by our Organization. It is, indeed, with much pleasure that we greet distinguished officials from six non-OPEC oil-producing nations, who are here as observers. They come from Angola, Egypt, Mexico, Oman, Russia and Syria.

At the same time as this is happening, there are new, encouraging signs about the global economic recovery. There has, for some time, been a consensus among forecasters that the world economy will begin to recover in the second half of this year, increasing the call on oil and triggering a rebound in prices. But this may, in fact, be happening earlier than expected. Recent comments by the United States’ Federal Reserve Chairman, Alan Greenspan, that a US economic recovery was “well under way”, together with the release of encouraging employment figures, have generated a new optimism in the economic outlook that extends beyond the borders of the world’s leading industrialised nation. However, it is early days yet; the messages about the global economic outlook are still, to some extent, ambiguous and should, therefore, be treated with caution.

Let me say at this point that OPEC is greatly concerned about current international tensions, particularly in the Middle East. We hope that there can be peaceful, timely resolutions of all the conflicts that are affecting the lives of vast numbers of people in this troubled period. Such conflicts threaten to destabilise the global economy just at the time when its general outlook is improving. They may also distort realities in the markets. In the specific context of the international oil market, therefore, let me make the following point quite clear — OPEC remains committed to steady, secure supplies of oil at all times, with prices that balance the interests of producers and consumers.

What prices are we talking about? Let us turn the clock back to January–August last year, when the average price of OPEC’s Basket was almost $25/b, which was right in the middle of our price band. Indeed, the monthly average price stayed within a narrow range of $23.7/b and $26.3/b throughout that eight-month period. In other words, we had prices which were both sustainable over a long period and acceptable to the market at large. And then came the shock of September 11, which had a highly disruptive impact throughout the global economy. Within a fortnight of that fateful day, the Basket had fallen by $5/b; it then lost another $2/b in the following weeks. A further spiralling downwards was only prevented by effective and timely OPEC action, supported by non-OPEC. Much of the economic effect of September 11 appears to have worked its way through the system; yet oil prices are still well below the levels that were maintained over the eight-month period prior to those tragic events in the USA. Therefore, there is every reason to believe that prices will continue to strengthen in the coming weeks and months, as they approach longer-term sustainable and widely acceptable levels.

All in all, therefore, as we begin today’s Meeting of the Conference, we are cautiously optimistic about the near-term outlook for the international oil market. The very purpose of our gathering is to ensure that we gain a thorough insight into current developments. As usual, we are well-supported in our endeavours by the research carried out by the Secretariat since our last Conference. We must, therefore, ensure that we reach decisions which will enable the market to function in a healthy equilibrium in the coming months, balancing the requirements of producers and consumers in a fair and reasonable manner.

In this regard, we shall continue to count on the support and cooperation of our non OPEC partners, since this is ultimately to the mutual benefit of all producers, without exception.

Thank you for your attention.