OPEC reassures market of adequate supplies

No 13/2006
Vienna, Austria
10 Aug 2006

OPEC has noted the loss of crude oil output with the partial closure of British Petroleum’s 400,000 b/d Prudhoe Bay oilfield in Alaska and the immediate market reaction arising therefrom.

Unfortunately, the incident has proved to be the latest in a series of events that has pushed oil prices to successive record levels. The OPEC Reference Basket on Wednesday stood at over 72 dollars a barrel after international markets reacted anxiously to the loss of Alaskan production. That price is almost 1.50 dollars higher than at the same time a week ago.

As always in these situations, OPEC stands ready to do all in its power to correct any imbalance in the market. This level of commitment was again endorsed at the 141st (Extraordinary) Meeting of the OPEC Conference held in Caracas, Venezuela in June, where the Organization’s Ministers reaffirmed their determination to ensure that crude oil prices remained at acceptable levels. They also pledged their readiness to continue to closely monitor market developments and agreed that its President would consider convening an Extraordinary Meeting ahead of the next regular OPEC Conference in September, should market conditions so warrant.

The fact is that some of OPEC’s producers can bring additional supplies to the market very quickly, if such action is deemed necessary, subject of course to adequacy of refining capacity. In fact, the Organization has boosted oil output by some 4.5 mb/d since 2002 to ensure that the market remains well supplied. However, for the time being, the Organization remains confident that the world is still adequately supplied with oil and that no shortage will occur. In addition, commercial stocks, especially of crude oil, are more than comfortable in terms of absolute levels of forward cover.

In saying this, OPEC must again express its concern about the rising level of prices and the effect it could have on global economies, especially the oil-importing developing countries. Unfortunately, the oil market is very sensitive to such happenings, as evidenced by the latest price spike. This reaction again supports OPEC’s longstanding view that all parties involved in the oil market must work more closely to instill a higher level of confidence in the marketplace to prevent extreme price volatility when such events occur. In the light of the latest development, OPEC will continue to carefully monitor the situation and take all measures necessary to secure oil market stability and maintain crude prices at reasonable levels through the provision of additional supplies, as necessary.