Case for cooperation never stronger

OPEC Bulletin Commentary November-December 2014

When OPEC’s Oil and Energy Ministers gathered in Vienna for the 166th Meeting of their Ordinary Conference towards the end of November, they were confronted by the largest assembly of journalists, photographers and analysts the Organization’s relatively-new Headquarters in the Austrian capital’s historic First District has ever seen. In fact, such was the response to the end-of-year Ministerial talks that the customary ‘meet and greet’ of the Ministers, held especially for the media ahead of the plenary session, had to be staggered for safety reasons.

For the past few years OPEC Ministerial Meetings have, by comparison, been quite muted affairs, as far as the international press is concerned. But the fact is that since the aftermath of the global economic collapse — specifically from around 2011 onwards — the oil market has been performing well. Supplies have been more than ample, stocks acceptable and, most importantly, prices averaging at just over $100/barrel have been a good fit for the producers and consumers, as well as for the investors. As far as the Organization and its 12 Member Countries were concerned, there was no need to make any adjustment to existing policy measures at their successive Conferences. Rolling over their production ceiling of 30 million b/d proved time and again to be the best option.

As a result, media coverage of their Meetings began to take on a lesser relevance. But this was somehow reassuring. There was a feeling of calm — instilled by a relatively stable oil market. That all changed for OPEC’s November Meeting with the Organization’s Secretariat finding itself inundated with requests for accreditation.

OPEC has long stood on a pedestal — a reflection of its 54 years of experience. When problems occur in the oil market — the most recent disturbance being the slump in crude oil prices — the spotlight invariably falls on the Organization for an answer. Hence, the increased media interest at OPEC’s latest Meeting. Expectations were high ahead of the talks that the Organization would react to the current price decline by cutting its 30m b/d ceiling. It is a sacrificial measure the Organization has made on several occasions in the past. Not this time, however. After over three hours of intense deliberation, the Ministers decided that in the current uncertain climate, maintaining the status quo was again the best course of action to take. The Conference communiqué read: “… in the interest of restoring market equilibrium, the Conference decided to maintain the production level of 30m b/d, as was agreed in December 2011.”

But there are some pertinent facts to consider here. As OPEC Secretary General, Abdalla Salem El-Badri, pointed out at the press conference — for the past few years, the Organization has more or less been producing what it said it would — 30m b/d. That has been the call on the Organization’s oil and that is what its Members have produced — and will continue to produce in the first half of 2015. The epitome of stability, one would say. But what of the oil producers outside the Organization? Again the OPEC communiqué: “… although world oil demand is forecast to increase during the year 2015, this will, yet again, be offset by the projected increase of 1.36m b/d in non-OPEC supply … giving indications of an extremely well-supplied market.” Already in 2014, non-OPEC output growth stands at 1.72m b/d, as stated by the OPEC Secretariat in its Monthly Oil Market Report (MOMR) for December. It means that total non-OPEC oil supply for the year will now be 55.95m b/d.

So, given this scenario, who should be expected to cut production to put a floor under prices?

As to the reasons behind the recent price decline, OPEC Conference President, Abdourhman Ataher Al-Ahirish, Libya’s Vice Prime Minister for Corporations, pointed to a combination of key factors in his opening address to the Ministers: ample supply, moderate demand, a stronger United States dollar, uncertainties about global economic growth, as well as the impact of speculative activity in the oil market. He warned that if the current situation with prices persisted, the long-term sustainability of capacity expansion plans and investment projects may be put at risk. He also asserted that the recent price developments were a sign that the oil market was currently searching for stability and balance. Well, in adhering to its long-established 30m b/d ceiling, OPEC, for one, is making its contribution.

Dialogue and cooperation have long been watchwords for OPEC. Over the years, it has taken part in various discussions with leading non-OPEC producers — and they have been reasonably successful. The Organization has repeatedly stressed — and rightly so — that it cannot singlehandedly solve the problems of the oil market and nor should it be expected to. OPEC Secretary General, El-Badri, has said at international energy fora that the Organization stands ready to talk to anyone — if it achieves the common desire of attaining a fair and orderly oil market that benefits all stakeholders. Surely, in this growing multilateral world, and particularly at this testing juncture, a combined and coordinated approach is increasingly required if the current challenges are to be overcome.

OPEC Bulletin November-December 2014

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