Opening address to the 129th (Extraordinary) Meeting of the OPEC Conference

No 2/2004
Algiers, Algeria
10 Feb 2004

By HE Dr. Purnomo Yusgiantoro, President of the Conference and Minister of Energy and Mineral Resources for Indonesia

Excellencies, ladies and gentlemen,

A change of scenery can do us all a world of good! Therefore, the invitation by the Government of Algeria to host the 129th (Extraordinary) Meeting of the OPEC Conference in their capital city, Algiers, is most welcome. This new setting for our Conference, I am sure, will provide us with an added source of inspiration during our deliberations. Thank you very much, Your Excellency Dr Chakib Khelil, for your Government’s generous invitation and for the elaborate arrangements that have been made to ensure that our visit is as cordial and as fruitful as possible.

We have a convention at OPEC that, whenever a new Oil Minister is appointed by one of our Member Countries, we announce this at the first Conference at which he appears in this new post. Since there was no opportunity to do this at our last Conference in Vienna on December 4, the privilege has now fallen to me to extend a special welcome to HE Dr Edmund Maduabebe Daukoru , Nigeria’s Presidential Adviser on Petroleum and Energy, who is attending our Conference for what is now the second time as Head of his country’s Delegation. I also wish to thank his predecessor, HE Dr Rilwanu Lukman, for the distinguished service he has rendered to our Organization at Ministerial or equivalent level over the past two decades, including six years as Secretary General, and to wish him and his family good health and happiness in the future.

The purpose of today’s meeting is to review the current state of the international oil market and the outlook for the rest of 2004, so as to determine whether we need to revise our production agreement. As you will recall, this agreement is based on the OPEC-10 output ceiling of 24.5 million barrels a day. The agreement was rolled over at our Conference in Vienna two months ago, after we had decided to return to this ceiling on September 24, 2003. Crude oil prices have remained high since our last meeting on December 4, and there have been calls for OPEC to raise its output ceiling to help bring prices down.

OPEC is sensitive to such calls, especially when they come from other responsible members of the global energy community. Indeed, our own day-to-day monitoring of oil market movements itself picks up the same signals. We take these situations very seriously, because we know that, if oil prices pass certain threshold levels — either upper or lower levels — they can have an adverse impact in a broader economic and political realm, which may ultimately rebound on the petroleum industry.

Why, therefore, have we not taken action on price levels which have consistently exceeded the top end of our price band of $22–28 a barrel for OPEC’s Reference Basket since our December meeting?

The principal reason is our judgement that the oil market is already well-supplied with crude. However, the benefits of this are being mitigated by low crude oil inventory levels in the USA, excessive speculation and continued geopolitical tensions.

In particular, prices are being affected by US crude oil stocks falling beneath the perceived lower minimum operating levels in a regime of just-in-time inventory policies and the high level of non-commercial speculation. These destabilising forces are, to a great extent, treatable, but they are beyond the reach of OPEC.

Even if we could make a significant and immediate increase in supply now, we would be reluctant to do so. This is because OPEC views oil market dynamics as a continuum which extends beyond immediate short-term concerns and embraces likely developments months and perhaps even a year ahead. Our projections indicate that there will be a significant surplus of oil in the second quarter of this year, and, if this is not handled in a timely and effective manner, there is likely to be excessive downward pressure on prices, leading to a protracted spell of volatility in the market, which will be in nobody’s interests.

In other words, because of current pressures that seriously affect the market’s ability to perform in line with fundamentals, we are in the curious — and disturbing — position of finding that the medicine for today’s sickness may well be the generator of another kind of sickness in the very same body in just a few months’ time! This provides the grounds for calling today’s Extraordinary Meeting, so that we can evaluate the current state of play in the international oil market. If we feel we need to revise our market-stabilisation measures, then we shall, of course, do so.

We must seek to ascertain the level of oil demand throughout the course of the year. This is not an easy task. At the annual meeting of the World Economic Forum in Davos last month, one of the biggest areas of uncertainty revolved around the true state of health of the global economy, in particular, the sustainability of the recovery in the USA. Across the Atlantic, the rising value of the euro may well affect economic activity later in the year. However, it is encouraging to note that all the world’s leading economies are growing again — including Japan’s, after a decade of serious economic problems.

However, of particular concern to us, as oil-producing developing countries, is the falling value of the US dollar against other leading currencies. This can have serious budgetary repercussions, because it reduces the purchasing power of our petroleum revenue and affects the ability of our Member Countries to develop their domestic economies and to invest in additional petroleum production capacities.

While oil producers cannot take direct measures to support the dollar, we can at least minimise the impact of its decline, by ensuring that oil prices remain at reasonable levels. This requires the support and cooperation of all oil producers — OPEC and non-OPEC — so that the necessary remedial measures can be taken whenever prices come under pressure, in a broad-based, timely and effective manner.

Thank you for your attention.