Reasons to be cheerful

OPEC Bulletin Commentary June 2014

It was over quite quickly. In fact, the 165th Meeting of the OPEC Conference finished two hours ahead of schedule. Even the customary press conference, held immediately after the Meeting at the Organization’s Secretariat in Vienna, Austria on June 11 and usually a busy affair, was most probably completed in record time. But this brevity of discourse spelled good news — for OPEC and, in fact, all petroleum industry stakeholders. As the much-heralded saying goes — ‘don’t be tempted to tamper with a smooth-running engine’. And that is exactly what OPEC’s Oil and Energy Ministers did during their customary mid-year Meeting. They decided to leave the Organization’s 30 million barrels/day oil production ceiling in place and unchanged for the remainder of 2014.

“Everybody is happy,” OPEC Secretary General, Abdalla Salem El-Badri, told newsmen at the briefing in reference to how Member Countries viewed the international oil market at present. OPEC’s Ministers were equally as buoyant. “… oil demand is good and the global economy is in good shape,” Iran’s Petroleum Minister, Bijan Namdar Zangeneh, commented, while Saudi Arabia’s longstanding Minister of Petroleum and Mineral Resources, Ali I Naimi, effused: “Everything is in good order. Supply is good. Demand is good. The price is good.” Indeed, a good deal of optimism was expressed all round.

But then the facts before the Ministers were encouraging. As spelled out in the Conference communiqué, the relative stability seen in crude oil prices so far in 2014 was seen as a good indication that the market was being adequately supplied. Yes, some periodic price fluctuations were noted, but these were considered more a reflection of geopolitical tensions than a response to market fundamentals, which gave every indication they were in tune.

Reports prepared by the OPEC Secretariat showed that world economic growth was projected to reach 3.4 per cent in 2014, up from 2.9 per cent in 2013, whilst global oil demand was expected to rise from 90m b/d to 91.1m b/d over the same period. In addition, petroleum stock levels, in terms of days of forward demand cover, remained comfortable. “These numbers make it clear that the oil market is stable and balanced, with adequate supply meeting the steady growth in demand,” OPEC Conference President, Omar Ali ElShakmak, Libya’s Acting Oil and Gas Minister, said in his opening address to the Conference.

Of course, there are still downside risks to the global economy, both in the OECD and non-OECD regions, and there is continuing concern over some production limitations, but with non-OPEC supply growth of 1.4m b/d forecast over the next year, in general, things are looking decidedly better than one year ago.

However, time and the ever-progressing learning curve have taught OPEC that it can never afford to rest on its laurels. And this was also spelled out in the Conference communiqué, whereby the Ministers gave an assurance that OPEC would “firmly respond” to developments that might jeopardize oil market stability. “Member Countries will, if required, take steps to ensure market balance, which is so important to world economic activity,” it stated.

In fulfilling its role, OPEC will continue to monitor oil market developments closely in the months ahead, to ensure that the oil market stability being enjoyed today continues. But for this it also needs the continuing support of other energy stakeholders, who also benefit from the current environment. OPEC should not be expected to stand alone — others must play their part if the stability that so importantly contributes to global economic growth is to be maintained. In this regard, dialogue and collaboration with consumers, non-OPEC producers, oil companies and investors will continue to be critical. OPEC is convinced that only by working together can the industry’s common goals and aspirations be achieved now and in the challenging years ahead.

OPEC Bulletin June 2014

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