OPEC takes broader vision to Luanda Conference

OPEC Bulletin Commentary December 2009

When OPEC’s Ministers gather in Luanda, Angola, for the 155th (Extraordinary) Meeting of the Conference on December 22, several issues will be uppermost in their minds.

To begin with, they will be wondering how the international oil market will perform in the opening months of 2010.

By then, with the northern hemisphere winter underway, the early seasonal weather patterns will be known. In a market well supplied with crude and with inventories above five-year average levels, a mild start could be putting pressure on prices. This could be reinforced by long-range weather forecasts and influenced by speculative activity, particularly in the futures markets.

If, on the other hand, severe wintry weather has set in, or is seen as imminent and enduring, then this could present a very different picture of market prospects for the near term and help support prices.

The Ministers will also be reviewing what is happening in the world economy. In recent weeks, there has been a marked improvement in the outlook, exceeding many expectations of just a few months earlier. This has been especially the case in the non-OECD world, while many industrialized countries are, at the same time, finally emerging from recession.

Thus, in reassessing its decisions, OPEC will have to find a balance between what is happening in the oil market at the present time and the outlook for the world economy in the following months and through 2010.

Much will depend on the weather and on perceptions of economic and related developments, including reform of the global financial sector.

Above all, it will call upon the judgement and expertise of OPEC itself to evaluate the situation, benefiting from its experience of direct involvement in the oil market stretching back almost half a century, as the Organization stands on the threshold of its Golden Anniversary year.

Many OPEC officials will arrive in the tropical heat of Luanda after making the long trip south from the Nordic cool of Copenhagen. The events themselves contrast vividly too, with OPEC’s Meeting focusing on oil market activity and the Danish meeting hosting what may turn out to be a seminal round of the United Nations-sponsored multilateral climate change negotiations.

However, the two events are also closely related.

That is why OPEC delayed holding its 155th Conference until after the Copenhagen meeting.

It is more than just the case of what may or may not be agreed in Copenhagen. At the time of writing this commentary, it was widely felt that reaching a post-Kyoto deal may have to be deferred to a later date.

It is also the fact that the latest climate change negotiations — both the event itself and, equally importantly, the build-up to it — have been prompting much soul-searching and crystallising of positions on climate change issues and response measures right across the globe.

Things have moved forward in many ways — economic, political, scientific and technological — since the formulation of the Kyoto Protocol in 1997, even though the fundamental principles and obligations remain the same.

For policymakers in the oil sector, it has been important to pick up the signals, however, faint, about how countries throughout the world today prioritize the energy challenges for the coming decade, accommodating the three themes identified by our own Heads of State and Government at the Third OPEC Summit in 2007 — stability of global energy markets; energy for sustainable development; and energy and environment.

This will help oil producers formulate their investment strategies for the timely and adequate provision of production capacity in the future. This is vital for an industry with huge upfront capital outlays and long lead times.

And so, while this month’s Extraordinary OPEC Conference in Luanda, the last for the year, is concerned primarily with short- to medium-term developments in the oil market, the Ministers recognize that they can best address these by having a clearer, broader vision of the way ahead for the industry well into the future.

However, that is not the end of it for the authorities in Angola.

Shortly after the oil business is completed, their attention will be focused fully on football. For, in January, Angola will host the African Cup of Nations, a football fiesta that unites Africa, as the continent’s top 16 national teams vie for honours.

As Angola’s national oil company Sonangol puts it, this tournament “provides an opportunity for the country to demonstrate its increasing confidence and stature, both within Africa and as a member of the global community.”

How true for both business and sport!

This Commentary is taken from the December 2009 edition of the OPEC Bulletin, which can be downloaded free of charge in PDF format from the OPEC website.

OPEC Bulletin (December 2009)

Download document

Commentary Archive