This is an edited version of an interview with the secretary general of OPEC, Abdalla Salem El-Badri released by the OPEC bulletin team.
Despite OPEC’s December cut, oil prices are still falling. What can OPEC do to halt this?
Less than a month has passed since OPEC took this decision. And so I would say it is still too early to write off the possible effect that this could have on the oil market. As you may recall, when the OPEC conference met in September 2008, we reviewed the situation in the market, which we found to be over-supplied; therefore, we took the decision to reduce production by 500,000 barrels a day. In October, we again reviewed the outlook and the market was still over-supplied. As a result, we decided to mop-up the excess crude in the market by reducing production by a further 1.5 mb/d. And, once more, at our most recent Conference in Oran in December, an additional decrease of 2.2 mb/d was agreed by member countries. This brought the total cut since early September to 4.2 mb/d. All in all, we will not know the full effect of the latest 2.2 mb/d reduction, and the degree to which member countries have adhered to it, until February 15.
However, from the data we have been receiving, there has been an almost 100 per cent compliance with the first two cuts, and this is a good sign. I hope that, come February 15, compliance with the 2.2 mb/d cut will also be seen to have been at a high percentage. We know already that all our member countries are adhering to the decisions. However, after February 15, the Secretariat will review the market carefully and will then present its findings to the next conference in March. If then the market is still over-supplied, the conference will not hesitate to take further measures to balance the market. But for now, it is still too early to say.
What can non-OPEC producers do in this regard to stabilize the market?
Non-OPEC producers, like Russia, Norway, Mexico and other small countries, can contribute by cutting supply to ensure that the market is not over-supplied — because if it is, then it will be in no one’s interest. This will only affect prices and future investment in both the upstream and the downstream. And it will lead to tight supply in the near future, causing high prices.
If this slide is not stopped, how will it affect the production and supply of crude oil in the medium- and long-term?
If the present situation does not change and we do not return to reasonable prices for oil products, the likely effects will be far-reaching. Very low prices will affect investments in both the upstream and downstream. This will have two main consequences. First, it will delay future investments in the sector, and second, it may also lead to the cancellation of further future investments. Either way, this will automatically affect oil supply to the market. In addition, it will also have an effect on gas supply.
The next OPEC international seminar will be held in March with the topic “Petroleum: Future stability and sustainability”. What do we expect from the Seminar? Is it part of OPEC’s stabilization efforts?
Yes that is correct, the fourth OPEC international seminar will be held at Vienna’s magnificent Hofburg Palace on 18 and 19 March 2009. Given the unprecedented volatility that the oil market has experienced in recent months and the far-reaching impact of the global financial crisis on the real economy, the seminar provides an ideal and extremely timely stage upon which to address the pressing issues of oil market stability and sustainability. It is our belief that it is only by enhancing dialogue between all parties — producers, consumers, governments, international organizations and others — and encouraging greater transparency, that we will strengthen the long-term prospects of the petroleum industry and, in turn, ensure that it supports the global economy’s return to healthy and sustainable economic growth.
Of course you are aware that stabilizing the oil market has been a principal aim of OPEC since the Organization was formed in 1960, and the seminar will once again enable all participants to contribute to this debate. We look forward to a very constructive event, the outcome of which will support OPEC’s continuing efforts to bring about stability – something that is of vital importance to us all.
At this year’s seminar, OPEC’s guest speakers and participants — including the energy ministers of OPEC and non-OPEC countries, the executive director of the International Energy Agency, the managing director of the International Monetary Fund, leaders of international oil companies and many others — will examine petroleum’s future and the part it will play in the development of emerging economies, and the realisation of the Millennium Development Goals in an increasingly carbon-constrained world.
