The second decade - learning from the first

OPEC Bulletin Commentary January-February 2010

The dawn of the new millennium. Was that really ten years ago?

It is difficult to grasp that we have already entered the second decade of the 21st century.

And it is even harder to believe that our Organization will celebrate its 50th birthday in 2010.

Whatever happened to the years in between?

Well, half a century of oil industry and OPEC affairs are far too extensive to analyze here, but the first decade of the new millennium was certainly eventful.

Except for the final difficult years, the period was an exciting time for the industry. Massive advances were made in technology and communications, advancing the boundaries of exploration and development across the whole supply chain.

Solid progress in dialogue and cooperation embraced broader issues facing the development of mankind. These were captured as three guiding themes in OPEC’s third Solemn Declaration in 2007: stability of global energy markets; energy for sustainable development; and energy and environment.

OPEC, as always, saw to it that consumers remained well supplied with crude. Overall, average annual world crude oil production rose by nearly 14 per cent between 1999 and the last full data year of 2008. And the world’s proven crude oil reserves grew at an even greater rate — nearly 22 per cent.

But serious downsides remain a cause for concern today.

Of note, the decade witnessed shifting, unpredictable patterns with non-OPEC supply, and these had an unsettling influence on the market at times. First there was strong growth, then there was a slump, and more recently, OPEC’s efforts to stabilize the market after the 2008 price collapse, by reducing production, were compromised by some non-OPEC producers increasing theirs. This was despite their many gestures of solidarity in winter 2008–09, when the economic crisis was at its deepest and oil prices at their most fragile.

Also, the price volatility that dominated market affairs for much of the decade, particularly near the end, was disturbing, disruptive and damaging for everything from day-to-day business to the investment that is so vital to the future of the industry. As we have said repeatedly, the main culprit was speculation, with crude oil futures being treated as financial assets in a poorly regulated international money sector. Indeed, the subsequent global financial meltdown, spurring on world recession, came as no surprise.

As a result of all this, the market experienced, in 2008, its first annual decline in total world demand for a quarter of a century. And there was a further fall in 2009.

So, where are we heading now?

The world’s emergence from recession, even though slow and fragmented, is welcomed by the industry. Oil demand is widely expected to start rising again this year. The financial/real economic crisis has served as a wake-up call for international decision-makers, and we hope to see an early end to the continued prevarication, in some quarters, over the large-scale implementation of effective financial reforms, to prevent a repetition of the damaging events of 2008.

This would support the investment in the future production capacity required to meet growing demand in the years ahead.

OPEC remains committed to ensuring that consumers receive secure, timely supplies of oil at reasonable prices in the future, and our Member Countries have the reserves to do this.

This, in turn, requires an effective enabling environment across the world at large, with greater predictability and consistency of demand and robust, well-regulated financial institutions.

However the future pans out, OPEC, for one, will be doing all it can to maintain order and stability in the oil market. But its message is clear — all parties have a role to play in ensuring a sound future for oil supply.

Throughout 2010, the Organization will be taking time to celebrate its anniversary, which actually falls in September. And rightly so — it is a significant achievement and many activities are planned. But the festivities apart, it will still be a case of ‘business as usual’ as OPEC continues to wrestle with its age-old adversary — oil instability. It is a commitment the Organization signed up to in Baghdad in 1960 and one that will continue in the future. OPEC knows its role — it has done for almost half a century!

This Commentary is taken from the January-February 2010 edition of the OPEC Bulletin, which can be downloaded free of charge in PDF format from the OPEC website.

OPEC Bulletin (January-February 2010)

Download document