OPEC: A force for global stability

OPEC Bulletin Commentary April 2014

When OPEC Secretary General, Abdalla Salem El-Badri, addressed the customary press briefing at the end of the OPEC Conference in December last year, he expressed optimism that 2014 would be a good year for the international oil market. It was not a statement made lightly, but one borne out of the data, forecasts and projections drawn up by his research staff at the OPEC Secretariat in Vienna in support of the impending decisions to be made by the Organization’s Oil and Energy Ministers.

Well, we are already midway through the second quarter and that optimism appears to have been well-founded. So far, so good, as the saying goes. OPEC’s Monthly Oil Market Report (MOMR) for April attests to this. Its figures show that the fundamentals are balanced: oil demand remains firm in tandem with the gradual improvement in the global economy; supplies to the consumers are more than ample; stocks of crude and products are at healthy levels; and prices are reasonable and, most importantly, relatively stable. Admittedly, the month of April did witness a slight dip in both oil demand and economic expansion figures, due to such factors as downward revisions to the economic growth of some emerging economies — as well as Russia — coupled with the unfolding events in Ukraine, but this is hopefully a temporary blip with the overall growth trend for 2014 tending upwards. Of note, is the expected improvement in the OECD region this year, which is welcome news after the prolonged period of negative growth suffered by the bloc as a result of the global financial crisis.

Of course, one cannot say we are out of the woods yet. As the past few years have taught us, good fortune can very quickly turn to misfortune, so there is certainly no room for complacency. But today, with all the attention and scrutiny the global economy has received — and continues to receive — coupled with the various controls and fail-safe mechanisms now in place, slowly and surely confidence has been building and the overall economic picture is becoming less hazy. This is without doubt good news for all those associated with the international energy scene, and particularly for the socio-development aspirations of OPEC Member Countries.

Entering the spring and summer months in the northern hemisphere usually brings with it a fair amount of apprehension within energy industry circles. That is primarily as a result of the fact that the second quarter, particularly, and the third quarter, to a lesser extent, is synonymous with a downturn in crude oil demand. But in keeping with the changing face of global energy demand patterns, that is no longer necessarily the case. As the April OPEC MOMR reveals, total world oil demand in the second quarter of 2014 is actually projected to be higher than in the winter months of the first quarter. That is due to one main reason. In general, oil demand in the OECD has remained flat for quite some time now with marginal or no growth. This region used to be the demand powerhouse as the industrializing economies grew after World War II. That mantle is being increasingly handed over to the developing countries — specifically the emerging economies of Asia. It is in the East where the planet’s main energy demand thrust lies now — and in the future — and it is where the fortunes of the oil producers, including OPEC, lie going forward. As OPEC’s World Oil Outlook (WOO) for 2013 points out, with world energy demand set to grow by 52 per cent up to 2035, crude oil demand is expected to rise by 20 million barrels/day, with a mammoth 88 per cent of this being accounted for by developing Asia. This expansion will necessitate huge investment in the extra production capacity required. In OPEC’s case, the WOO forecasts the Organization’s Member Countries spending in the region of $35–40 billion annually in the coming decade and over $50bn a year in the long-term. In the non-OPEC countries, investments will be considerably higher at around $170bn annually in the medium term.

Those are staggering sums, showing an unprecedented commitment by producers to ensure consumers receive adequate future oil supplies. So, it goes without saying that, today, more than at any other time, oil market conditions conducive to this investment need to be firmly in place. And that requires the principal stakeholders — the producers, the consumers, the oil companies, and the investors — cooperating and working together like never before to ensure the smooth running of the oil market. OPEC, for its part, stands ready to speak with any interested party if it helps the long-term welfare of the market and the business interests it represents. That is why the Organization, since its inception over half a century ago, has been relentless in its quest to attain market equilibrium and fair and reasonable crude oil prices. Dialogue and cooperation are crucial if international oil markets are to remain stable and functioning correctly, with a minimum level of speculation.

As Secretary General El-Badri pointed out in Doha in early April, while attending the annual Abdullah Bin Hamad Al-Attiyah Energy Awards (see page 6): “Stability is central to everything we do. It is the overarching concern that links us all.”

OPEC is indeed a force for global stability. It hopes others will follow its example — for the ultimate good of all.

OPEC Bulletin April 2014

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