An era ends but the challenges remain

OPEC Bulletin Commentary August-September 2009

As OPEC’s Ministers left the Organization’s Secretariat in the early hours of Thursday morning, September 10, they knew that this marked the end of an era.

It was the last time they would meet as a Conference on the premises that have housed the OPEC’s headquarters since 1977.

However, they also knew that the underlying challenges facing the oil industry remained, as did the Organization’s unflinching resolve in meeting them.

The fact that OPEC rolled over its production agreement, for the third time since it was set up in Algeria last December, came as no surprise to most people — this had been widely expected in the build-up to the Meeting.

There is, however, still so much uncertainty about the outlook for the world economy in the coming months that it is almost impossible to forecast the impact of this on the oil sector.

As OPEC has made clear on several occasions recently, we do not want to take measures that risk rocking the boat within the troubled waters of the global economy.

Furthermore, the situation is not helped by so much indecision over future regulation in the international financial community, as the debates rage on among powerful interests in the richer nations and positions become entrenched.

A year has passed since the outbreak of the crisis affecting the world’s financial institutions, with the collapse of Lehman Brothers. There has been much talk during that time and not enough concrete action, and high levels of speculation continue to influence oil prices, distorting fundamentals and fuelling volatility.

OPEC’s Ministers will have another chance to review the oil market outlook at the end of this year, when they gather at an Extraordinary Meeting of the Conference in Angola on December 22. Hopefully, a clearer picture of the world economy and energy trends will be in place by then.

OPEC will also be looking for meaningful, practical support for its market-stabilization measures from non-OPEC producers. In fact, we had hoped that this would have already happened, judging from the many gestures of solidarity expressed last winter and earlier this year, when the economic crisis was at its deepest and oil prices at their most fragile.

While OPEC has reduced production heavily since last September — which has meant sacrifices from our Member Countries, in the interests of the overall good of the market — some other producers have done the opposite and increased output, compromising the impact of our measures and eating into our market share.

This is a matter of much concern to us and runs counter to the big advances in dialogue and cooperation that have been made since the turn of the century and which have brought many benefits to the market as a whole.

We are all in this together — OPEC and non-OPEC alike — as we seek to cope with a crisis not of our making and whose severity, ubiquity and unpredictability have no parallel in modern history.

There is widespread agreement that oil prices should be at least at today’s levels and preferably a little higher, to support investment in the industry and help meet the large rises in demand forecast for the coming years.

We must also break down, once and for all, the damaging boom/bust cycles that have so plagued the industry in the past, to the detriment of all parties.

In this way, the industry will be able to provide solid support to the world economy, as growth picks up again. Indeed, the recovery, once it gets into full swing, could be quicker and more widespread and substantial than people expect today, and we must be ready for this.

Therefore, a unity in approach among all producers, both OPEC and non-OPEC, is essential for the steady development of the industry, as well as for sustained order and stability in the market. We must all strive to achieve this.

This Commentary is taken from the August-September 2009 edition of the OPEC Bulletin, which can be downloaded free of charge in PDF format from the OPEC website.

OPEC Bulletin (August-September 2009)

Download document