The prospect of whether oil prices could be stabilized on a long-term basis fueled debate at the first International Oil Summit held in Paris Nov. 16 and organized by Institut Francaise du Petrole.
Keynote speakers Alí Rodríguez Araque, Venezuela's energy and mines minister, and Rilwanu Lukman, Organization of Petroleum Exporting Countries secretary general and Nigerian presidential adviser, were hopeful that compliance with OPEC's production restraint agreement would continue until and perhaps beyond the OPEC heads of state summit slated for next April in Caracas.
Their view was bolstered by the fact that, so far, not only have OPEC member countries complied "80-90%" with the March 1999 agreement, but that it has received the cooperation of four key non-OPEC producers: Mexico, Norway, Oman, and Russia.
"Prices," said Lukman, "have now reached levels considered by many market analysts and operators as being consistent with long-term equilibrium in the market."
Lukman hopes "such a positive trend will become a regular feature of the new century, whether the market is in crisis or in a healthy state," because it is good for both sides. But neither he nor Rodríguez would indicate how the matter will be broached at the Caracas OPEC summit, at what level prices should be stabilized, and how this could be achieved, whether through a price band, as Rodríguez suggests (OGJ, Sept. 27, 1999, p. 24) or any other way.
They could not say, either, if compliance with the current agreement would continue until its scheduled expiration in March or if it would be extended further on a more permanent basis.
"We are waiting for the Caracas meeting to fomulate policy," said Rodríguez. "We are not going to set any limit for adopting measures and implementing them," he insisted. The price-band idea has not, reportedly, met with the support Rodríguez had expected. After the Paris conference, he traveled to Riyadh to meet with Saudi Arabia's and Mexico's oil ministers.
Admitting that "the issue of cooperation (among oil producers from within and outside OPEC) is fundamental to the whole process," of market stabilization and its success, Lukman called on both OPEC and non-OPEC producers to "ensure that the market functions" more effectively in the 21st century than it has in the 20th century.
Summit objectives
Lukman also announced that, 60 years after its foundation, "OPEC will be fundamentally reappraising its role, its objectives, and other major issues, when it holds its summit...in Caracas. Much of the summit's deliberations will be market-oriented, because that is our core business," he maintained.
Although the summit agenda has not yet been finalized, he said, "It is almost certain to include...pricing and production agreements and cooperation with non-OPEC producers."
He also mentioned that other topics might include a dialogue with consumers, the provision of adequate future production capacity, the role of natural gas as a "sister export" to crude oil, the impact of technology and communications revolutions on the oil sector, the drive for a cleaner and safer environment, the not-too-distant depletion of crude oil reserves for some member countries, and the continuing negotiations on a climate change treaty.
State company views
An interesting long-term view of OPEC was suggested by Sonatrach CEO Mourad Preure, who sees cooperation within OPEC taking shape among producing companies rather than among governments, as is now the case.
Meanwhile, viewing OPEC's efforts towards oil market stabilization, Vittorio Mincato, CEO of Italy's ENI, poured cold water on expectations of long-term stabilization of oil prices at a relatively high level. "If there is one thing that we have learned from the market," he noted, "it is that the significant fluctuations in short-term prices that dominate the oil sector cannot disguise an underlying, long-term downward trend."
Explaining that high oil pricess "could give unpredictable impetus to forces that could push prices downwards," Mincato noted, "the price dilemma is today based on two opposing forces: on the one hand, the long-term structural trend, specific to the dynamics of supply and demand, that sees prices aligned with marginal production costs; and, on the other, the ability of some oil market players-notably leading producers-to continue to curb their own output to achieve a set price target."
OPEC's efforts to control production are undermined, said Mincato, by a "gigantic paradox": that three fourths of oil investment is at present concentrated in OECD (Organization for Economic Cooperation and Development) countries that are "home to just 10% of oil reserves...At the same time, OPEC oil revenues have fallen significantly, while the direct costs linked to production restraint remain high, as do the indirect costs related to the failure to develop the available potential"-because the upstream in most OPEC countries is closed to international investment (see related story, p. 26).
Mincato believes the success of OPEC's strategy in the medium term requires "stringent control of complex and tricky variables, perhaps too many in number. That will be a very difficult task." The market, he maintains, would continue to be dominated by "uncertainty and competition" as long as the interests of the oil industry are not realigned with those of producing countries."
This could be achieved through a "gradual reopening of the leading producing countries to international investment and cooperation with the world energy industry and, to begin with, diversification of the economy based on developing natural gas, electricity, petrochemicals, and refining."
