The Organization of Petroleum Exporting Countries (OPEC) decided on 17 January to cut its members’ oil output by 1.5 million barrels/day from 1 February.
The decision complies with the policy that OPEC has successfully pursued in the last two years of rescuing world oil markets from the abyss into which they had fallen in 1998 and early 1999, when prices plummeted to less than $10/barrel.
OPEC’s decision stems from the continuing consultations that it holds with producing and consuming countries, and investors to maintain the mutual interests of all players in the oil market.
In the fifteen years leading up to 1999 investment did not receive the attention it deserves as the capital invested in the oil industry only gave a return of about 7 percent, compared with 11 percent for non-oil activities.
That eroded the profitability of the oil industry in all its facets, including supplies, refineries, and tankers.
The repercussions spreaded to natural gas, with prices escalating in recent months to unprecedented levels in the USA.
At the end of 2000 gas prices exceeded $50/barrel of oil equivalent, compared with about $10/barrel in 1998.
The decisive factor in the success of the oil states was their grasp on reality.
They took into account world economic growth and their own development needs when they drew up the goals they wanted to achieve.
They resolved that $25/barrel was the optimum price and those involved in the oil industry considered it to be a reasonable price that would both provide incentives for renewing infrastructure and enable the industry to meet future growth in demand for oil and gas.
Producers and consumers at the Seventh International Energy Forum (Riyadh, 17-19 November 2000) agreed that such a price would serve the interests of all parties.
The oil states chose to pump increasing volumes of oil so as to stem the sharp price rise in 2000. The increases in OPEC’s output alone totaled 3.7 million b/d, and other increases were effected by the producers who had helped cut output in 1999, namely Mexico, Norway, Russia, and Oman.
Despite a surplus supply of about one million b/d in the second half of 2000, prices continued to rise, obliging producers to boost output once more so as to calm market operators.
Oil stocks rapidly rose by over a hundred million barrels, and prices consequently fell. In December 2000 oil prices dropped about 20 percent from the previous month.
With spring just around the corner, oil prices are expected to fall even further if OPEC continues to produce at the levels agreed upon at the end of 2000.
This in turn will result in severe price fluctuations, which will jeopardize the oil and gas industry and all economic activity in the oil exporting countries, just as happened in 1998.
Most consumers have not benefited from the drop in oil prices owing to the exorbitant taxes levied by many industrial nations on petroleum products.
The British government, for example, resolved in 1998 to increase its taxes by 12 percent, bringing them to $90/barrel, as against $80/barrel in 1997. The final consumer found himself paying $132/barrel in 1998, compared with $127 in the previous year.
It is apparent that if the oil producers want to achieve market stability, enable the oil industry to renew its infrastructure, and ensure that the world economy has sufficient petroleum supplies, they must review the decisions they take from time to time in light of developments in supply and demand.
Article 2 in OAPEC’s Establishing Agreement underlines the importance of paying attention to the legitimate interests of all the member countries, as well as consumers and investors.
We believe that the measures taken by OPEC (which includes six OAPEC members) at the beginning of 2001 fulfill the goal outlined in OAPEC’s Establishing Agreement.
The petroleum market must be protected from sudden shocks that can harm producers, consumers, and investors alike.
Source: oapecorg.org
© 2001 Mena Report (www.menareport.com)
