From winter to spring …

OPEC Bulletin Commentary February 2008

In Europe, spring appears to be almost upon us. The shoots of early season flowers are shouldering their way up, and there is an expanding choir of chirping song birds. As spring unfolds, this is a time of the year when nature realigns its delicate balance and experiences much change.

The same is true for the international oil market. This transformational period has always been a critical juncture, and in 2008 alongside this yearly seasonal change there is also plenty more to analyze and ponder. For example, there are the prospects for the world economy; trends in non-OPEC supply; downstream bottlenecks, the weakness in the US dollar; and, speculation.

Bringing all these various strands together is not an easy task, but clarity is paramount for a balanced and stable oil market.

At OPEC’s 147th (Extraordinary) Meeting of the Conference at the beginning of February, it was noted that OPEC production decisions had ensured that the market remained well supplied throughout 2007 and commercial stock levels remained within the five-year average, with the expectation that the first half of 2008 will witness a build. In addition, non-OPEC supply is expected to increase by just over one million barrels/day in 2008 and provide much of the incremental barrel during the year.

The clear message from the Meeting was that the world should not be concerned about the supply of oil. There is plenty available and OPEC Member Countries are also accelerating plans to bring on-stream new projects, so as to respond to future demand.

The Meeting added that it was the projected global economic slow-down and the significant uncertainties surrounding key oil market fundamentals that required vigilant attention from the global community.

It led to the Conference agreeing that, at the present time, the current level of OPEC oil output is sufficient to meet expected demand in the first quarter of 2008. The decision was taken in the face of calls from some quarters to raise supply, but given market activity since, OPEC’s assessment appears to have been on the mark.

Supply has not been an issue. In fact, there have been significant stock-builds in many major consuming nations. The most recent data from the US stated that crude oil inventories were showing an upward trend, crude oil imports had increased and gasoline stocks had risen to their highest level since February 1999.

There has also been much talk about downward revisions to global economic growth, particularly in a number of major economies in the industrialized world. For example, recent data from the US has highlighted that the number of jobless has risen and big chain stores have also reported consumers pulling back on spending. For the OECD region, the latest figures from the OPEC Secretariat suggest two per cent growth in 2008, compared with 2.7 per cent in 2007.

We all want any slowdown to be as painless as possible, but it is important that we do not bury our heads in the sand. There is a high degree of uncertainty surrounding this issue, and it needs to be monitored closely.

Nature and springtime brings us much to wonder at, but for the oil market it is what to wonder about. And in turn, act upon. We cannot take our eyes off it. Day-by-day, week-by-week, the key for OPEC and all stakeholders is to take every measure deemed necessary to keep the market stable, so as to maintain the sustainability of the energy system on which the whole world depends.

The next OPEC Conference is March 5, just a month after the last one. Vienna in the early throes of springtime provides another opportunity to carefully review the market at such an important time of year.

This Commentary is taken from the February 2008 edition of the OPEC Bulletin, which can be downloaded free of charge in PDF format from the OPEC website.

OPEC Bulletin (February 2008)

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