The Role of OPEC

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The Role of OPEC in Oil Market
Stability presented by Mohammad
Alipour-Jeddi Head, Petroleum Market Analysis
Department Organization of Petroleum Exporting
Countries Vienna Economic Forum 5th November
2007 Vienna
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• Outline
• Understanding OPEC
• Review of the oil market
• Historical developments
• Recent developments
• Prospects
• OPEC capacity expansion
• Concluding Remarks

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• Understanding OPEC

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OPEC profile

• Average GDP per capita 2,200
• But there is a very wide range (550-45,960)
• 95 of the 533 million people in OPEC live in a
  country where GDP per capita is no higher than
  5,000
• This compares with OECD average GDP per capita of
  over 28,000
• Average life expectancy 61 years
• Oil Dependency of OPEC MCs
• Share of oil exports in total exports 68
  (15-95)
• Share of oil exports in GDP 27
  (5-59)

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OPEC objectives
OPEC Statute (Article 2)

• The principal aim of the Organization shall be
  the coordination and unification of the petroleum
  policies of Member Countries and the
  determination of the best means for safeguarding
  their interests, individually and collectively
• The Organization shall devise ways and means of
  ensuring the stabilisation of prices in
  international oil markets, with a view to
  eliminating harmful and unnecessary fluctuations
• Due regard shall be given at all times to the
  interests of the producing nations and to the
  necessity of securing a steady income to the
  producing countries an efficient, economic and
  regular supply of petroleum to consuming nations
  and a fair return on their capital to those
  investing in the petroleum industry

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OPECs role in a globalised and interconnected
world

• Engagement in dialogue with producers consumers
  The Conference
• OPEC EU
• OPEC IEA
• OPEC China
• Active role participation in international
  forums
• IMF, World Bank, IRU,

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OPEC-EU Energy Dialogue

• Initialized in December 2004
• Three Ministerial meetings since 2005
• Workshop on the Impact of Financial Markets on
  the Price of Oil and Volatility (2006)
• Roundtable on Oil Market Developments (2005)
  Energy Policies (2007)

• Dialogue seeks to enhance co-operation in oil
  market analysis, energy policies, energy
  technologies and related multi-lateral issues

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OPEC-IEA Dialogue

• Dialogue seeks to enhance mutual understanding of
  views and issues important to consuming and
  producing countries
• Five joint workshops have been held on key oil
  market issues since 2001
• First three focused mainly on oil investment and
  supply issues
• Most recent, Asian Oil Demand Outlook and
  Challenges, held in Bali

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OPEC-China Dialogue

• Initiated by Ministerial Meeting in Beijing in
  December 2005
• First High-level OPEC-China Roundtable held in
  Vienna in 2006
• Second High-level Roundtable held in Beijing in
  October

• The Dialogue seeks to establish a continued
  exchange of views at all levels on energy issues
  of common interests, in particular security of
  supply and demand, within a balanced and
  pragmatic framework that will ensure a fruitful
  and long-lasting cooperation

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• Review of the oil market
• Historical developments

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Continued increase in world oil demand, but
structural shift in oil demand growth
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OPEC production Maintaining market balance(mb/d)
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Supply security Supply exceeding demand
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• Review of the oil market
• Recent developments

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Recent developments in crude oil prices (US/b)
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OPEC Reference Basket value considerably lower in
euros than in US dollars
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Factors behind upward shift in prices since 2004

• Surge in demand due to strong world GDP growth at
  30-year high
• Weak non-OPEC supply
• Increasing OPEC production
• Downstream bottlenecks
• Geopolitical tensions and increased activity in
  futures markets magnifying price volatility

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Strong World growth led by Asia
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Sudden surge in oil demand growth in 2004
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Weak non-OPEC supply growth(mb/d)
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OPEC in action Crude production responsive to
market needs
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Sharp increase in OPEC production led to lower
spare capacity
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Tightness in downstreamIndustry faced with
shortage of effective spare refinery capacity
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Investment by major oil companies (Billion US)
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Increasing activities in futures market1,000
Contracts
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The volume of paper trade for commercials
non-commercials have increased in the NYMEX
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• Prospects
• OPEC capacity expansion

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OPEC/non-OPEC share in oil reserves and
production ()
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OPEC production capacity plans by countrymb/d
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OPEC production capacity plansincluding NGLs
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OPEC refining expansion planstb/d
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Concluding remarks

• OPEC reserve base is sufficient to meet projected
  world oil demand (oil 77, natural gas 49 of
  total world reserves)
• OPEC Members are undertaking investments to
  expand supply capacity (more than 5 mb/d by 2012)
  to meet the expected increase in world oil demand
  and provide an adequate cushion of supply
• Additional efforts are also being made to address
  tightness in downstream
• Recent Ministerial decision to increase OPEC
  production by 0.5 mb/d is a clear demonstration
  of the Organizations concern about the continued
  health of the world economy as well as its
  ongoing commitment to ensure adequate supplies,
  especially ahead of the high-demand winter season

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Concluding remarks

• Security of demand is vital to ensuring that the
  appropriate level of investments are made in OPEC
  Member Countries to minimise the risks associated
  with under- and over-investment
• Consumers governments should consider minimising
  policy-induced uncertainties on oil demand
• OPEC attaches great importance to the need for
  deepening and widening the dialogue between
  producers and consumers for the benefit of both
• The Third Summit of Heads of State and Government
  of OPEC Member Countries, to be held in Saudi
  Arabia in November 15-16, will provide long-term
  guidance to enhance OPECs stabilising role in
  the market and ensure adequate supplies to meet
  energy needs for sustainable development

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