Orikinla: [size=18pt]How does OPEC stabilize the market price of oil?
Runner21 It stabilizes the market price of oil by makings sure that it goes through when it convinces some one to buy it
OPEC : Oil market stability: the role of OPEC
A Speech by Dr. Edmund M. Daukoru, President of the OPEC Conference, Minister of State for Petroleum Resources, Nigeria, to the 28th Oxford Energy Seminar, Oxford, England, 8 September 2006
[Slide 1] Excellencies, ladies and gentlemen,
Thank you for inviting me to Oxford to deliver this address on oil market stability and the role of OPEC.
Over the past three decades, the Oxford Energy Seminar has carved a niche for itself in the international energy community as a venue for high-level debate, in camera, on topical issues affecting the industry. Without exception, debate at this renowned seminar is fuelled by contributions from politicians, industrialists, academics and other experts of the highest standing and with vast reserves of knowledge and experience, and so I feel especially privileged to be invited to address such an accomplished gathering today.
Indeed, when we look at the present situation in the international oil market — with the high level of price volatility that has characterised it over the past two and a half years — then clearly such fora as this come into their element!
[Slide 2] On several occasions during this period, crude oil prices have reached record highs, and I am sure some seasoned market-watchers in this room are themselves wondering where and when prices will peak, or whether they have done so already.
Our predecessors had similar difficulties with crystal ball-gazing! A quarter of a century ago, some acclaimed international analysts were predicting crude oil prices of US $100 a barrel by the year 2000. Instead, prices collapsed below $10/b in the mid-1980s, less than half a decade later. Similar lows occurred a decade after that, in the wake of the economic downturn in south-east Asia. Even today’s record levels are well below three-quarters of the way towards the predicted $100/b mark!
We are, of course, referring to nominal prices here. In real terms, taking into account inflation and currency fluctuations, prices are still below levels reached in the early 1980s. It is important to be aware of this.
However, while record oil prices may capture the imagination of the public at large, it is, arguably, volatility that is of most concern to the industry.
If the goalposts are constantly shifting — not just from side to side, but also backwards and forwards, and perhaps even up and down! — then it becomes really difficult to both play the game today and to make rational decisions for tomorrow.
As is well known, the volatility, that still afflicts us today, was first widely perceived in the spring of 2004, and this followed several years of relatively high stability, very much encouraged by OPEC’s production agreements of the time.
[Slide 3] The initial reaction was that something strange is happening to the market. Is this just a temporary blip, and, if so, how temporary and how extensive? Or are more fundamental factors at play? If so, what are they and how deep-rooted are they? How long will it take the market to accommodate the new fundamentals and return to a workable equilibrium? At what price level and at what supply and demand level will this workable equilibrium be?
[Slide 4] How should producers — those that have the capability to increase production capacity — react to the new dynamics, in an industry where the upfront investment is large and the lead-times are long? Should they hold their breath a little longer to see how the situation transpires, should they take, so to speak, lightweight actions to tackle a short-term development, or should they adopt rather different measures to handle a more fundamental, longer-term phenomenon? In pondering thus, we must remember that these producers face a huge burden of risk in investing heavily in capacity that may not be needed.
Such issues as these faced OPEC’s Oil Ministers when they met in Vienna on 31 March 2004. To add irony to the situation, this was happening at a time when the market appeared to be well-supplied with crude and the market was moving into the traditional lower-demand season of the year.
Furthermore, we must be cautious here in Oxford today about making judgements with the benefit of hindsight. Our closing press release in March 2004 stated that the “high oil price levels remain predominantly a consequence of long positions of market speculators in the futures markets coupled with a tightening in the US gasoline market in some regions, and exacerbated by uncertainties arising from prevailing geopolitical concerns rather than purely a reflection of supply/demand fundamentals.” It added that “structural problems and bottlenecks (were) affecting the downstream oil industry, which have been contributing to recent price movements.”
We can see here that there have been some shifts in emphasis in analysis carried out since that time about the causes of the volatility in early 2004. For example, more weight has since been placed on the impact of tightness in the downstream sector in consuming countries, which has been very much due to a lack of timely investment and increasingly stringent product regulations. Interestingly, it has emerged that, during the past two and a half years, downstream price volatility has been having a “pull” effect on upstream price volatility, rather than the more usual reciprocal “push” effect of the upstream on the downstream, as one would expect from classical economic analysis.
[Slide 5] Also, subsequent analysis has highlighted the big effect of the unexpectedly high levels of oil demand from the rapidly growing emerging economies in Asia, especially China and India, as well as from the North America. In 2004, global oil demand surged by 3.0 million barrels a day, a level of demand growth not seen since the 1970s.
[Slide 6] Furthermore, the volatility facing the oil industry in spring 2004 had analysts contemplating on its possible impact on the global economy as a whole, due to oil’s leading role in the world energy mix. There was the obvious tendency to compare the rapidly developing situation with that of the 1970s. Subsequent analysis, however, has exposed major differences to three decades ago, with a greatly reduced impact on world economic growth and oil demand. Reasons include much lower oil intensities in consuming countries, higher taxation levels, greater efficiency, a more diverse energy mix and the fact that the transportation sector, with its low price elasticity, now has a much larger share of the international oil market. Fundamentally, the present situation is essentially demand-driven, resulting from the strong economic growth, rather than supply-driven, as was the case in the 1970s.
All of this emphatically underlines the benefit of stability to the oil market and further afield across the global economy, covering all foreseeable time-horizons. Stability begets stability. If stability could be achieved and sustained in its purest, most universal form, then it would clearly be a “win-win” situation for all the responsible parties in the oil industry. But stability must be worked on by those parties for the short, the medium and the long terms.
In addition to this, stability provides another very important benefit to OPEC Member States and other oil-producing countries, particularly those from the developing world, where petroleum export revenue can account for a very large proportion of total export revenue — about 73 per cent, on average, for OPEC in 2005. The revenue oil-producing developing countries receive from oil sales is essential for financing their economic and social development programmes, to an extent that may not be fully appreciated by industrialised nations. This is in addition to the part that must be reinvested in the upstream to meet rising demand. It is, therefore, in the best interests of these producing countries to ensure that every possible measure is taken to support market stability at all times, so that the optimal benefit can be derived from their finite oil resources and shared among present and future generations.
[Slide 7] This explains why OPEC is so committed to achieving and maintaining market stability, a commitment that goes back to its inaugural meeting in Baghdad in September 1960. OPEC’s very first resolution stated that “Members shall study and formulate a system to ensure the stabilization of prices.” [Slide 8] Several months later, this commitment was enshrined in the OPEC Statute, when it was first adopted in January 1961, and it has remained a key guiding principle of the Organization ever since: “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.”
It has been reaffirmed repeatedly in OPEC documentation over the years, notably in OPEC’s two Solemn Declarations, which concluded summits of Member Countries’ Heads of State and Government in 1975 and 2000, and, most recently, the Long-Term Strategy (LTS) OPEC adopted exactly one year ago. Indeed, the LTS is unequivocal in its views about oil price volatility, saying that this “renders all the more difficult the interpretation of price signals, whether they are an indication of structural change or a reflection of temporary phenomena, and thereby affecting the ability to support longer-term market stability.”
The LTS also emphasises the importance of fair prices, the security of regular supply to consumers and the security of world oil demand. This again elaborates upon the OPEC Statute: “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.”
[Slide 9] It also brings us onto the important issue of energy security, which is closely linked to market stability and has gained greater prominence on the international political agenda over the past year or so, in the wake of the recent market volatility. Energy security provided the central theme of the Tenth International Energy Forum (IEF) in Doha in April, it features prominently in the European Union’s Green Paper on a European Strategy for Sustainable, Competitive and Secure Energy, and it headed the agenda at the recent G8 Summit in St Petersburg.
Indeed, in the build-up to July’s summit in St Petersburg, there was an International Conference on Energy Security in Moscow in March, followed immediately by a G8 Energy Ministerial Meeting. In OPEC’s official statement to the Ministerial Meeting, we made the point that “the concept of ‘global energy security’ is so fundamental to life in the 21st century that every effort must be made to clarify its meaning, to gain a consensus on this and to ensure that its true principles are embodied in decision-making processes across the energy sector by at least the major players.”
We welcomed the broader-based approach by consuming countries to energy security — as opposed to merely supply security — that emerged in St Petersburg. At the end of the summit, the Chair stated: “We agreed that dynamic and sustainable development of our civilization depends on reliable access to energy. It is best assured by strengthened partnership between energy-producing and consuming countries, including enhanced dialogue on growing energy interdependence, security of supply and demand issues.”
The issue of security of demand is very important to OPEC and other producing countries. Security of demand must go hand-in-hand with security of supply as a means of achieving market stability, since, without the confidence that predictable, reliable demand for oil will emerge, the incentive to undertake the necessary investments can be significantly reduced.
Nevertheless, in spite of these positive developments at the G8 Summit, we feel, in OPEC, that more confidence could have been expressed by the participants at large about the willingness and the ability of oil-producing developing countries to service the growing world energy requirement in the years ahead.
So far, I have endeavoured to explain the importance of stability to the international oil market and the world economy at large, as well as OPEC’s unyielding commitment to achieving and sustaining market stability and security, from which all responsible parties can benefit. Let us now look at how OPEC goes about meeting this commitment.
A good place to start is with the present market volatility, which, as I have already remarked, has persisted for around two and a half years. I earlier tried to illustrate the mindset of OPEC’s Oil Ministers as the new situation began to unravel in spring 2004, referring to the OPEC Conference of March that year.
IF WE NOR OPEN OUR EYES THIS TIME, WE NOR GO EVER WAKE UP AGAIN, DIS GOVT PROMISE MANY THINGS AND HE NOR FULLFILL HALF OF WETIN HE TALK, LIGHT WE NOR GET, HOSPITAL NOR DEY, SCHOOL FEES NOR BE JOKE, SECURITY MATTER NOR GO THERE, FUEL SEF NA DIE EVEN AS DE PRICE OF CRUDE COME DOWN NOW,FOOD E NOR DEY, UNEMPLOYMENT NA OUR GUY,CORRUPTION NA OUR PADDY, OMOH UNA NEVER TIRE FOR ALL DIS MATTER, MAKE WE ENSURE SAY POWER CHANGE HANDS BECAUSE DIS GOVT DEY FIGHT FOR CHOP CHOP TERM, DIS ONE NA THE GOVT LAST TERM AND NA CHOP CHOP TERM BE DIS,IF HE WIN AND CONTINUE, BE PREPARED FOR THE WORST. I TAKE GOD BEG UNA, OUR PAPA, MAMA, BROTHERS AND SISTERS THE GOVT DON DEY BEG US AGAIN FOR VOTE, ASK YOURSELF WHEN LAST HE REACH YOUR STATE IF NOR BECAUSE OF SAY YOUR VOTE IMPORTANT, OPEN YOUR EYE AND VOTE WELL OOH, DE DECISION YOU TAKE GO DETERMINE YOUR SUITATION IN DE NEXT FOUR YEARS... PDP DON KNOW SAY E DON FINISH FOR DEM, VOTE WISELY AND DEFEND YOUR VOTE, USE YOUR VOTE TO SEND A STRONG MESSAGE TO THEM THAT WE ARE TIRED OF DIS GOVT, HOW LONG THEM GO TAKE FOOL US, SINCE 1999 TILL NOW, WE NEED A POSITIVE CHANGE. VOTE APC.
Guy, u should understand better. Diezani is OPEC president. She thought she could use her position to influence things. Is GMB also going to be OPEC president? Doctokwus, you're even more clueless than GMB.
I don't understand d insult.U agree wt diezani that she can stabilize oil price just because she is d president of OPEC. So what makes GMB's different, will Nigeria stop being an OPEC member when gej loses?
" I think it is absolutely necessary to make people accountable....we heard about the mismanagement of the oil industry which accounts for 95% of our earnings. Thus we need to stabilise the oil market because other sectors will take time. The immediate plan is to stabilise the oil market and (thus) stop wastages. But without accountability, even if oil sells at over 110 dollar per barrel, it will still mean nothing"
You're blessed. See all the rubbish gejites posted in a futile effort to achieve the impossible task of tarnishing gmb. Only the clueless himself would hav spewed such brainless statement.
I don't understand d insult.U agree wt diezani that she can stabilize oil price just because she is d president of OPEC. So what makes GMB's different, will Nigeria stop being an OPEC member when gej loses?
I didn't agree with Diezani. I said she thought she could use her position to influence things, which obviously failed. GMB, after everything still thought he could go to OPEC and mandate them to adjust oil price. Nigeria, being an OPEC member doesn't mean it can determine oil price.
Daramola Liberty Joseph Dear President Jonathan, As I started reading the transcript of your speech in your flag off campaign for 2nd term in office, my heart was gladdened to know that the speech was directed to Nigerian youths of which I am one. I must say that up to this time I decided to read your manuscript I have heard a lot of bad things that seemed true about your government and hence had a poor view of your time in office. It was only after working hard to put my sentiments away and after listening to Oguntola Adelowo, a colleague of mine who has been preaching about you did I read online the transcript of your speech. When you said 'my speech is directed to the youths, those who will be voting for the first time', I began to doubt my earlier beliefs of you being imcompetent and lacking a plan, I was eager to hear from you what and how you have worked tirelessly for my generation in the past 6 years in office and also what you intend to do in the next 4 years to consolidate your efforts. Therefore sir, it came as a shock to me that you spoke of everything but your plans, you addressed every issue but the germane ones that has so far affected my generation and is already shaping out our future. Sir, I did what you requested, I asked my father, a middle-class citizen, who is 66 years old now about Buhari's tenure and here was his reply 'I remember those days, we had very stable electricity, youths didn't fancy travelling abroad because they felt they could get even better here, I bought a carton of tin peak milk for #1.20k, I could iron press my clothes minutes to going out, fuel was sold for 50k per litre, corrupt people like umaru dikko were jailed and killed, no minister or government official could be accused of corruption and resign only to run for an higher office, and no public official was alleged with fraud only to be seen on National T.V laughing in court' and he ended by saying that during those times, everyone knew the rules and tried as much not to break the law but that now the same laws made to protect the average nigerian like him is what his used to oppress them and he concluded by saying that there is no perfect government and that though it was military they enjoyed many good things that our own generation may never enjoy due to the high level of corruption in our government, except ofcourse things change. Sir, in your speech you spoke of building 12 federal universities, yet the one I school in which is 30 years old can not still provide enough sitting stools for students. You speak of producing more megawatts, yet I rarely have power supply to view many of the interesting programs and football matches shown on DSTV. You speak of needing time to tackle insecurity, yet you have had 6 years already, you fail to forget that Obama took down the world's greatest terrorist in just 3 years. You speak of fertilizer distribution, yet we buy beans for #200 per derica from #140 in 2010 when fertilizers where stolen (I think I would prefer to have the fertilizer stolen and buy food cheaper than now. You speak of improved economy yet we buy fuel for #97 from #65 (49.32% increase), beans for #200 from #140 (42.86% increase), housing #200,000 from #120,000 (66.67% increase), transportation #50 from #30 (increase of 66.67%), Salary #18,000 from #15,000 (increase of 20%). Where then is the improvement in Nigeria's economy not to forget ther over 100% increase in fees paid by tertiary institutions nationwide. Thank you for admitting that your generation has failed us, but my generations have decided to do things differently, to succeed where our fathers have failed; to vote for a change in government. Thank you sir for serving us to the best of your abilities sir, your lack of confidence to focus on your plans for us within the next for years during your speech has betrayed my generations trust in you. Please ensure our votes count as we intend to have a landslide victory on Feburary 14th. I am a Nigerian youth, I be
It seems the man is only coming for revenge, zero economic planning nothing, absolutely nothing.
Efcc should swing into action for defrauding poor Nigerians with one sham buhari campaign fund raising, how can someone like this want to rule a nation like Nigeria? The world will simply be laughing at us
Oh! So as Goodluck Jonathan is ruling like this, the world is not laffing at us? . I laff at you.
The world laffs at you when over 200 school girls get missen under your nose and you can't find them in your own Backyard.
The world laffs at you when $20Billion dollars gets missen from non remittance from sales of crude oil.
The world even laffs harder at u, when instead of killing boko haram, u are sentencing your galant soldier to death by military court marshals.
The whole world indeed laffs at u when ur nigerian army are the best in other peace keeping missions in liberia and seria-leon but to quench a boko haram insurgence is insurmountable task.
Look at France just recently, the Soachibrothers shooting was like a movie in less than how many hours?
Boko haram has lasted how long again? Pls remind me!
I'l rather have the world laff me with a Buhari as leader than laffing me with "The Clueless-One" as leader.
Oh! So as Goodluck Jonathan is ruling like this, the world is not laffing at us? . I laff at you.
The world laffs at you when over 200 school girls get missen under your nose and you can't find them in your own Backyard.
The world laffs at you when $20Billion dollars gets missen from non remittance from sales of crude oil.
The world even laffs harder at u, when instead of killing boko haram, u are sentencing your galant soldier to death by military court marshals.
The whole world indeed laffs at u when ur nigerian army are the best in other peace keeping missions in liberia and seria-leon but to quench a boko haram insurgence is insurmountable task.
Look at France just recently, the Soachibrothers shooting was like a movie in less than how many hours?
Boko haram has lasted how long again? Pls remind me!
I'l rather have the world laff me with a Buhari as leader than laffing me with "The Clueless-One" as leader.
He never said he would stablise international oil prices. [size=18pt]He said we should do what we can to stablise the oil market (not prices) and eliminate waste. In order words wants to clean our internal oil market e.g. NNPC etc.[/size]
They are lying to you and it is working g because you all are the Abacha generation kids. What do you mean Jonathan is fixing? Has Nigeria ever stopped fixing?' People are comparing a well resourced civillian regime with the worst of the military and giving it fake good marks. As a young primary school pupil in the seventies I never for once stopped seeing new construction, New roads, plants, railways, airports and so on... till Babangida and Abacha came in. It was part of school quiz to know which projects were going on and when they would be completed. My major problem with Jonathan is corruption and hoodwinking people triple financed projects with a lot of corruption and almost getting away with it because after all there is something o show.
It is becoming ridiculous what people are doing. Babangida and Abacha destroyed Nigeria and we are just getting out of it but don't compare a civilian regime with those regimes start giving marks that are not deserved.
Has Amaechi not developed PH, has Akpabio not developed Akwa Ibom what about the most difficult of the lot, Lagos?. When you give undeserved praise to a government that made $500bn in oil and gas over 5 years and is delivering basic, shoddy infrastructure then you are encouraging mediocrity.
I had the same anger at Buhari' s PTF during Abacha regime and all the praises heaped on the body that after all.we're giving us what we deserved citizens. Infrastructure is not the business of political administrations, they should run as long term projects independent of whoever is in power. No political party should e allowed to stop a project t that is in the long term plan and frankly no party deserves credit for infrastructure. If Buhari wins in February he is going to be commissioning a lot of projects started in Jonathan's admin most note worthy might be the New Niger Bridge but only a big IDIOT would give him credit.
Tex42: And to imagine that buhari is the change some sheeps chant every where,is a big slap on their faces.
'i will stabilize oil price'. this is laughable.
appalling...
..
nwaanambra1: "first [size=18pt]WE[/size] will stabilize the oil market and run an accountable govt" Any sane person knows that "WE" in that statement stands for OPEC which Nigeria is a member! Why then are they saying that Buhari said he will stablilze oil price while what he said is "WE" not "I"! Where did GEJ get all these m0r0nic people working for him?? oh i forget - "Show me your friends and i will tell you who you are!" GEJ and his e-warriors plus his campaign managers - same ten and ten pence! Dumbo! Dumbo! Dumbo!
Tex42: And to imagine that buhari is the change some sheeps chant every where,is a big slap on their faces.
'i will stabilize oil price'. this is laughable.
appalling...
..weather you people like or nt.....#wemustchange.!!!!
The fall in oil price is beyond OPEC. Many countries like America who aren't OPEC members are now producing oil of their own from shale, that is what brought about the crash in oil price. Besides you aren't in Buhari's mind, he clearly said that he will stabilize oil prices on his own.
One side of the story. The other side of the story is that, Saudi and some other gulf states are taking sides with the US (partly because their currency is tied to the dollar...good for them...their currency automatically appreciates against currencies like the rouble, naira and e.t.c. imagine if their 3.66 riyals to $1, is now exchanging for 5 to $1....) . And we know the Saudis own large shares in those American oil companies too. In essence we have a disunited/clawless OPEC.
Justcash: Funny how people expect miracles from former leaders that had absolute power but could not muster even a microcosmic development for Nigeria. The same clueless goons that decapitated Nigeria are being expected to save the same nation.
If Buhari couldn't do anything better than witch hunt with absolute power, how can he perform better with shared authority? It is simple maths.
So this is the only thing we can present to oppose Jonathan Nigerian Youths we are better than this!!!!!!!!!! Buhari is no change. GEJ is underperforming. #Teamrevolution.
Why didn't you quote him verbatim? The title of the post and your comments are misleading. This is what was said:
Interviewer: Let me start by asking you this time around, the issue of the economy, the issue of the growth of the Nigerian economy has been talked about. Dwindling oil prices. How would you tackle the issue of the challenges that we're facing in our economic life considering the fact that we are reliant majorly on oil proceeds?
Buhari: I think it's absolutely necessary to make people accountable. During this discussion, we talked about the hearing conducted, about the mismanagement of the oil industry where we depend up to about 95% of our foreign earnings. I think we should do what we can to stabilise the oil market because other thing that will complement our earnings like agriculture maybe mining will take time. The immediate one is how to stabilise the oil market and stop wastages from top to bottom so that whatever revenue is realised is judiciously applied to the economic development of the country. Without bringing discipline into accountability, I'm afraid even if the oil price goes back to good old days of over a $110 of oil per barrel, we cannot see the difference ...
Please op, kindly correct the title of your post. I watch the video posted and I see no where during the interview that Buhari mentioned stabilizing oil price. Are people becoming more lazy nowadays that they fail to listen, and read about the claim before passing judgment?.
DonnyT: Please op, kindly correct the title of your post. I watch the video posted and I see no where during the interview that Buhari mentioned stabilizing oil price. Are people becoming more lazy nowadays that they fail to listen, and read about the claim before passing judgment?.
Funny enough most of the people that commented never saw the video even obiagelli and berem and they jumped into commenting on the misleading topic.obiagelli,berem et al should be very careful cos i heard that in the run up to these elections that PDP brought out several millions of naira for propaganda in the various social medias in the country
Oil market/prices can be stabilized. It is clear that General Buhari knows more than most PDP e - warriors. Anyway, considering who they look up to , many of us are not surprised.
