Intervention by OPEC Secretary General at the "Oil and Money Conference 2008"

A brief intervention by H.E. Abdalla Salem El-Badri, Secretary General of the Organization of the Petroleum Exporting Countries (OPEC) at first session of the Oil and Money Conference 2008 (London, 28-29 October 2008)

Mr. Chairman, Excellencies, ladies and gentlemen,

I would like to begin my brief intervention with some factual statements:

The first is that more than any other previous conference organized by Oil and Money, this year’s conference is taking place in an environment of unprecedented global financial uncertainty.

Second is the fact that the speed at which we got to where we are today has taken most of us by surprise.

A third fact is that this is a phase in the global economy, which will come to pass.

Distinguished ladies and gentlemen, what is not a fact are the answers to the questions: how deep is this crisis going to be and how long will this phase last?

As I am sure we will all agree, the answer to these questions, particularly the latter question is very very important for the oil industry for many reasons.

In the first place, the oil market, like most businesses, cannot function well in an environment of huge uncertainty. This is especially so given the long lead times for investments in the industry.

Timeliness, as we all know, is critical in any sound investment strategy. No rational investor would want to invest too early or too late, as either way could result in losses. For this reason, it is important that the uncertainties surrounding the global economy clears so that plans could proceed to provide the world with the energy it needs for the future.

As OPEC has made clear on several occasions, our Member Countries are committed to capacity expansion to meet growing future energy demand.

We remain committed to adding net capacity of around five million barrels per day by the end of 2012, through investment of over US $160 billion, and additional US$ 60 billion plus in the downstream sector over the same period.

This brings me to the theme of this year’s conference: The New Realities of High-Cost Oil, a subject that has gained wide currency in recent years, given the dramatic rise and fall in oil prices especially since mid 2004.

As has been noted by many authorities of the industry, the rise in oil prices have been accompanied by a corresponding rise in the costs of all facets of the industry: exploration, production, transportation, refining and distribution. In some cases costs of service have grown more than four times since 2003. At the same time, skilled manpower has become a lot scarce.

All this takes me to the issue of the right price for oil.

Our position at OPEC is that the right price is that which avoids the extremes of high and low. It must not be too high as to make it unaffordable or have a negative impact on global economic growth. Nor must it be too low as to threaten the social and economic development of oil producing countries, whose economies rely heavily on oil revenues, and thus make any investment in future supplies impossible. Under both scenarios, OPEC assumes that fundamentals are the key drivers of the market. We are all living witnesses to the effect of underinvestment in recent decades on the industry. We should not allow that to happen again.

Allow me to conclude with some more statements of fact again.

The OPEC reference basket price rose to US$ 140.73 in early July and dipped to US$ 60.27 in October.

The average price for the ORB for 2002 to 2008 is US$ 54 per barrel. In OPEC, we will continue to work to ensure that the market remains well-supplied, and with sufficient spare capacity to cope with seasonal fluctuations and unexpected events.

The decision of the OPEC Conference last week to cut production by 1.5 million barrels per day with effect from November 1, 2008, should therefore be seen in the light of our commitment to stabilizing the world oil market.

I thank you.