Opening address to the 149th Meeting of the OPEC Conference

No 10/2008
Vienna, Austria
09 Sep 2008

by HE Dr. Chakib Khelil, Minister of Energy and Mines of Algeria and President of the Conference

Excellencies, ladies and gentlemen,

Welcome to the 149th Meeting of the Conference.

We are pleased, once again, to greet our friends from the non-OPEC oil-producing countries attending today’s Meeting as distinguished Observers. Their presence here is a further expression of the commitment of their governments to order and stability in the market and their recognition of OPEC’s objectives and role in the international oil market.

Therefore, let me formally welcome His Excellency Eng. Sameh Fahmy, the Minister of Petroleum of Egypt; His Excellency Igor Setchin, the Deputy Prime Minister of the Russian Federation; and His Excellency Al Zubair Ahmed Hassan, the Minister of Energy and Mining of Sudan.

Since we last met as a Conference on 5 March, the market has been through a period of high price volatility. We have seen crude prices rise by as much as US $10 a barrel in just one day and fall by $15 a barrel in three days. The price of OPEC’s Reference Basket was, at one stage, nearly 50 per cent higher than it was at our last Meeting, although it has dropped back since then, and it now stands at $101 a barrel.

And yet, throughout this turbulent period, supply and demand fundamentals have been sound, thanks to the pro-active measures taken by our Member Countries. The market has remained well-supplied with crude and stocks have been at comfortable levels. What do we make of all of this?

While prices were rising, we were saying that this was due to the impact of non-fundamental factors, notably the heightened levels of speculation, the falling value of the US dollar, geopolitical developments, downstream bottlenecks and perceived market tightness.

Now that there have been significant changes to some of these factors, such as the recent strengthening of the dollar, the easing of geopolitical tensions and the sharpened expectations of a global economic slowdown, with its impact on oil demand, we have been witnessing big falls in the oil price. Speculators, for example, have significantly liquidated their net long positions on the New York Mercantile Exchange, and this, in itself, has helped drive prices down.

All of this vindicates what we have been saying over the past year about the enormous impact that non-fundamental factors have been having on oil price volatility. This explains why we were reluctant to respond to calls to increase our production when prices were rising persistently, because we knew we would be treating the illness with the wrong medicine.

At the present time, there are many unknowns about the market’s behaviour, particularly with regard to price volatility, and we shall be focusing our attention on this critical issue at today’s Meeting. It is, after all, not right for a market to function in this way, with such wild swings in the price over such a short period, as we have seen over the past year.

As we keep saying, the issue of free-for-all speculation in the energy sector must be addressed comprehensively. There is too much at stake across the world for such high levels of volatility to be allowed to continue in this chaotic, damaging manner. Here I have in mind, in particular, the impact on the world’s vulnerable developing countries and the achievement of the United Nations’ Millennium Development Goals.

The volatility remains with us today. It has not become less of a problem, because of the recent reversal in the pressure on prices, from upward to downward. Volatility is one issue. Price levels are another. They are connected, of course, but each also must be addressed in its own way.

What we really need to determine at today’s Meeting is the extent to which the underlying trends have changed in the oil market — whether we take this back two months, to when prices peaked, one year, to when the volatility intensified, or four years, to when there was a fundamental shift in the market’s behaviour to reflect the unfolding realities of that time.

In assessing these issues at today’s Meeting, and in reviewing the outlook for the coming Northern Hemisphere winter and beyond, we shall be as conscious as ever of the need for lasting order and stability in the oil market, with reasonable prices and to the benefit of producers and consumers alike. And the agreement we reach will accommodate this abiding commitment of our Organization.

I thank you all for your kind attention and suggest that we now turn to the next Agenda item by inviting our distinguished non-OPEC guests to address the floor.

Thank you.