Market stability — There’s no simple answer

OPEC Bulletin Commentary September-October 2007

The September Meeting of the OPEC Conference has a special significance for the Organization. It enables the assembled Heads of Delegation of each Member Country to review the market outlook at a particularly important time of the year, with the approach of the Northern Hemisphere winter and the anticipated surge in demand for fuel for heating purposes.

Indeed, it was not so long ago — November 1998 — that the Conference decided to “realign the scheduling of its biannual Ordinary Meetings, which, henceforth, will take place in the months of March and September, rather than June and November.”

The first biannual Ordinary Meeting benefits too, with March being preferable to June for holding talks ahead of the summer driving season.

The decision to make the change in scheduling nearly a decade ago is characteristic of OPEC’s pragmatic approach to handling market matters and its willingness to fine-tune its decisions and actions, to reflect prevailing realities and enhance the effectiveness of its measures.

We saw this flexible, pragmatic approach to decision-making once again in Vienna on September 11, when the 145th Meeting of the Conference agreed to increase the volume of crude supplied to the market by its Member Countries, excluding Angola and Iraq, by 500,000 barrels a day, with effect from November 1.

The Conference went further than this, re-emphasising the readiness of its Members to respond swiftly to any developments which might jeopardize oil market stability and these countries’ interests. For this purpose, in addition to the Organization continuing to monitor vigilantly supply and demand fundamentals, the Conference agreed to reassess the market situation at its 146th (Extraordinary) Meeting in Abu Dhabi on December 5.

To an outsider, the whole idea of OPEC’s Oil and Energy Ministers flying to Vienna or some other city to meet for perhaps just a few hours, discuss the oil market outlook and reach a decision, which could have a significant impact on market stability, could ring a few alarm bells. This would be understandable, if the process were as simple as this.

But simple it is not.

Each Meeting of the Conference — whether Ordinary or Extraordinary — is the culmination of a process that is both complex and ongoing, right up to the point of the Meeting and then continuing afterwards.

No stone is left unturned by the OPEC Secretariat in seeking to provide the Conference of Ministers with the latest research and analysis on the market outlook and other essential topics for each Meeting. This involves intensive monitoring of every key aspect of global oil market activity, modelling market trends, preparing extensive, wide-ranging reports and analyses, participating in countless internal and external meetings, with experts from both inside and outside OPEC, and then bringing it all together in a series of high-level meetings at the Secretariat in the final build-up to the Conference itself.

Preparatory work for the recent 145th Conference included examining the recent evolution of market fundamentals, prices and volatility, assessing the key drivers, and analysing OPEC’s latest projections for the rest of 2007 and for 2008, as well as reviewing issues further afield, such as the turbulence in international financial markets, with its possible consequences for upcoming world oil demand.

When viewed in this light, it is clear that the Meeting of the Conference, the supreme authority of the Organization, is only part of the OPEC decision-making process, albeit a very important one.

Moreover, the process is enriched by the profound collective philosophy of the Organization, which is well summed-up by the concluding press release: “Recognizing the importance of maintaining oil market stability for the benefit of the world economy, the Conference reaffirmed its longstanding commitment to ensuring sound supply fundamentals at all times and to offering an adequate level of spare capacity for the benefit of the world at large, with reasonable prices to both producers and consumers that are consistent with the need for healthy global economic growth and conducive to the timely expansion of upstream and downstream capacity.”

Consumers should rest assured that OPEC takes its market-stabilization measures extremely seriously. It is a tough challenge. And OPEC is prepared to rise to the challenge, time and time again, even though this is never a simple task and requires a flexible, pragmatic approach to stay abreast of events in the constantly evolving global energy landscape.

This Commentary is taken from the September-October 2007 edition of the OPEC Bulletin, which can be downloaded free of charge in PDF format from the OPEC website.

OPEC Bulletin (September-October 2007)

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