Opening address to the 131st (Extraordinary) Meeting of the OPEC Conference

No 9/2004
Beirut, Lebanon
03 Jun 2004

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

Welcome to the 131st (Extraordinary) Meeting of the OPEC Conference. Although some of you may not realise it, this is, in fact, the fifth time that an OPEC Conference has been held in Beirut! However, the last occasion was more than three decades ago, in 1972, and the petroleum industry then was a very different place from what it is today. Nevertheless, I am sure our predecessors in OPEC enjoyed the same excellent hospitality and generous assistance and support that have been the hallmark of our visit this week. We should, therefore, like to express our heartfelt gratitude to the Lebanese Government for being such wonderful hosts and for ensuring that we have the very best facilities available for constructive and fruitful discussions. In this regard, I should also like to welcome to this Meeting our host country’s Minister of Energy and Water Resources, HE Ayoub Hmayed.

Additionally, we should like to extend our warmest congratulations to HE Dr Thamir Ghadhban on his appointment as the new Oil Minister of Iraq.

We should also like to take this opportunity to extend our sincerest condolences to the families and friends of those who lost their lives in the earthquake which struck the Islamic Republic of Iran. Our thoughts are with them at this difficult time.

The purpose of this Extraordinary Meeting is to review our present production agreement, to see whether it matches up to the requirements of today’s international oil market, or whether it needs revising to accommodate developments that have taken place since we last met in Vienna on March 31. As you will recall, at that Meeting, we reconfirmed the new production ceiling for OPEC-10 of 23.5 million barrels a day, with effect from April 1. The principal reasons for that decision were that our calculations had shown that the international oil market was well-supplied with crude and that there was the expectation of an occurrence of the traditional drop in oil demand during the second quarter of the year. We observed that crude stocks had been building in the previous two months and that they were projected to continue that trend in the second quarter.

Oil prices, however, have continued to rise during this quarter to levels that have exceeded expectations. This is in spite of the market remaining well-supplied with crude at all times and our Member Countries producing above our Organization’s agreed levels — something that we have not discouraged in the light of the present situation. The fact of the matter is that the high price of oil we have seen in recent weeks has not reflected upstream market fundamentals, which is why it has been so difficult for OPEC and other responsible producers to take effective remedial measures.

The high prices have been caused by a combination of factors over which OPEC has no control — speculation on futures markets, tightness in the US gasoline market, geopolitical concerns and higher-than-expected oil demand growth, especially in China and the USA.

We are very concerned about high oil prices and their possible impact on the world and domestic economies. At the moment, we are encouraging our Member Countries to do as much as they can to help stabilise the oil market. The central objective of our Organization is, after all, its commitment to market stability, with reasonable prices, secure supply and fair returns to investors. This objective is as old as the hills and dates back to the establishment of OPEC in September 1960. But we can only do so much in the present situation. As an Organization, we are already producing at close to capacity.

Also, even if our Member Countries collectively produced at full capacity — to the extent that this is technically feasible at any one time — there are some analysts who feel that this would have, at best, only a limited impact on prices, since the other factors affecting prices are so overwhelming.

In short, it is essentially not an upstream problem with which we are faced at the present time. This does not mean, however, that we will take an ostrich attitude and bury our heads in the sand! As I have just said, we are very concerned about the present situation and we are doing everything we can to help stabilise the market and restore reasonable prices, and we shall continue to do this for as long as necessary.

We are also conscious of the possibility of a significant counter-effect occurring some time in the future, if prices remain out of line with fundamentals for too long, and this could result in a serious weakening of the price structure, well below acceptable levels. When this has happened in the past, the overall conclusion that has been reached across the petroleum industry has always been the same — there are no net winners and no net losers.

Our concern about avoiding a repetition of excessive counter-effects explains why, over the years, OPEC has placed such a premium on achieving order and stability in the market, balancing, as much as possible, the interests of producers and consumers. This was essentially the philosophy behind the introduction of our price band four years ago, which balanced reasonable — and, hence, widely acceptable — price targets with flexibility. And this market-stabilisation mechanism worked very well for a while, until the present destabilising factors, over which OPEC has no control, began to play a disproportionately large role on the market’s fortunes.

To cut a long story short, we find ourselves heading in one direction, in the quest for a practical solution to the market’s present problems — dialogue and cooperation. These will not solve all the market’s problems overnight, but they can certainly help ease them in the short term and provide adequate breathing space to find effective, longer-term remedies.

OPEC’s longstanding commitment to dialogue and cooperation has found expression in our involvement in two major producer-consumer meetings since our last Conference in March — the Second Joint International Energy Agency/OPEC Workshop on Oil Investment Prospects in Paris five weeks ago and the Ninth International Energy Forum in Amsterdam during the past fortnight. While the emphasis was on longer-term issues and investment at these gatherings, one of the clear messages to emerge was, nevertheless, the importance of present-day stability in providing a solid base for a sound longer-term investment strategy. Thus our efforts to achieve order and stability in the oil market not only have the obvious immediate benefits for today’s producers and consumers, but also help secure the future of the industry and its capability to meet the widely forecast growing oil requirement in the years and decades ahead.

It is with this sentiment in mind that we welcome observers from four non-OPEC oil-producing countries to this Meeting — Angola, Egypt, Oman, and Syria. Their presence is indicative of the importance they attach to constructive dialogue and cooperation with our Organization and its Member Countries.

Let us now proceed with the 131st (Extraordinary) Meeting of the OPEC Conference.