Understanding OPEC a little better

OPEC Bulletin Commentary June 2011

As summer comes, let us hope for a general easing of tensions across the world.

First and foremost, our thoughts and prayers are with all those people caught up in conflicts that have arisen over the past six months, especially in the Middle East and North Africa. We yearn for an early return to peace and stability in these countries.

We remember too the victims of the triple natural disaster in Japan, which has brought home to us once again the fallibility of mankind to the raw power of the forces of nature, and mankind's need to respect these and to accommodate them at all times.

Both sets of events affect the global energy mix - not just for today, but also, most likely, for tomorrow.

As OPEC sees it, they highlight the difficulties one has when making forecasts for the international oil market and following these up with effective decisions that benefit the market as a whole.

This is not an easy task for any of us.

The industry is still coming to terms with a market where prices can be governed more by speculation than by the fundamental laws of supply and demand which involve physically getting the oil out of the ground and to consumers. Despite everything that has been said since the financial collapse of 2008, the financial services sector still has a disproportionately large impact on oil prices. The consequent volatility is doing nobody any good in the industry, least of all the consumer.

There are also the perennial difficulties created by other types of uncertainty, notably energy policies in consumer countries that discriminate against oil; these can be imposed quickly and unexpectedly and without due consideration of the legitimate interests of producers, which are, after all, their trading partners.

In the light of all this, does it really come as a surprise if, once in a while, the OPEC Conference is unable to reach a decision - as happened at the 159th Ministerial Meeting on June 8? This is not so unusual and occurs in other institutions too. On the few occasions that this has happened to OPEC in the past, we have weathered the storm and emerged the stronger for it.

The fact that OPEC celebrated its 50th anniversary last year underlines the strength and durability of our Organization and our ability to handle the toughest of challenges.

Three years before that, OPEC's Heads of State and Government issued their historic 'Riyadh Declaration'. This broadened the base of OPEC's self-assigned mandate with its three guiding themes: stability of global energy markets; energy for sustainable development; and energy and environment.

In other words, OPEC today stands for more than just oil market stability, important though this is. As the Riyadh Declaration puts it: "Addressing the economic, social and environmental pillars of sustainable development requires a comprehensive approach to international trade, finance, energy and technology issues." Also: "The process of production and consumption of energy resources poses different local, regional and global environmental challenges."

These three challenges - energy stability, sustainable development and environmental harmony - are interlinked and are close to the hearts of developing countries, including our own Members, seeking to modernise and expand their economies.

While none of our Member Countries welcomed the outcome of the 159th OPEC Conference, they nevertheless recognised that this was just a temporary setback in one area of their collective mandate and that their joint commitment to the Organization's broader-based objectives remained as strong as ever.

However, at the present time, they are more concerned about the need for a general easing of tensions across the world.

OPEC Bulletin June 2011

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