Rodr�ez: OPEC faces new challenges in changing oil market

The formation of the Organization of Petroleum Exporting Countries in 1960 was one of the greatest revolutionary events of the 20th Century, but the organization today is faced with a series of new challenges, says Venezuelan Minister of Energy and Mines Al�odr�ez Araque. Speaking in Caracas a few days before the upcoming OPEC ministerial meeting, which begins Wednesday in Vienna, the minister expressed his views on the past, present, and future of the organization.

Jun 20th, 2000


CARACAS�The formation of the Organization of Petroleum Exporting Countries in 1960 was one of the great ground-breaking events of the last century, but the organization today is faced with a series of new challenges, says Venezuelan Minister of Energy and Mines Al�odr�ez Araque. Speaking in Caracas a few days before the upcoming OPEC ministerial meeting, which begins Wednesday in Vienna, the minister expressed his views on the past, present, and future of the organization.

"One of the greatest revolutionary events of the 20th Century was without doubt the creation of OPEC, something that seemed unusual in those times." He noted that many other third-world organizations had tried to follow a similar pattern with other raw materials but had failed.

"OPEC not only managed to establish itself, not only managed to survive, but also today, as never before, maintains...the search for renovation processes that effectively places it face-to-face with the new challenges of the new millennium and, particularly, the beginning of this 21st Century," he said.

Addressing an international seminar on new world trends and the future of petroleum and energy here�one of several events being in preparation for the Sept. 28-30 OPEC heads of state summit�Rodr�ez, who is the current OPEC conference president, suggested that there should be increased cooperation between the organization and non-OPEC oil producers.

He underlined the need for the creation of new forms of financial cooperation among producers. Pointing to the importance of achieving stability in the world oil market, he said he envisions the possibility of meaningful agreements between oil producing countries and oil consuming nations in the not-too-distant future.

OPEC's challenges
The Venezuelan minister listed several changes that have occurred since OPEC was founded 40 years ago and that are presenting new challenges for the organization.

"In the first place [is] the creation of the International Energy Agency�a type of consumer cartel that emerged as a response to the conquests and policies that OPEC had been applying." IEA adopted a double-edged strategy: Reduce energy consumption and increase non-OPEC oil production.

An important second change is the fall of the so-called communist bloc. One of the factors that allowed an organization like OPEC to emerge and prosper, he said, was the existence of geopolitical blocks of power during the 1970s.

He listed some other differences such as the globalization process, the emergence of new players in the oil market, and the futures markets, "which, as we have seen frequently in recent times, have altered the reality of prices in a margin of between $4 and $5 [per barrel]."

Also, new realities like the General Agreement on Trade and Tariffs affect OPEC and its policies. And the technological revolution is very important as well, says Rodr�ez.

Yet another challenge OPEC has before it is "to effectively respond to environmental questions."

OPEC's shifting influence
The minister addressed other oil market trends that OPEC needs to consider in devising its evolving strategy.

"A new matter that causes enormous impact in the world petroleum scenario is the recent megamergers of huge oil companies in the world. From the 'seven sisters' that we had in the past, everything indicates that now we are going to have four sisters. These megamergers respond to the need to reduce production costs in order to achieve the unhidden objective of occupying more and more space in the world oil market and thereby bringing the fate of the world energy market closer to those giants," he said.

Noting that world oil demand will continue growing over the next 20 years and that OPEC members hold more than two thirds of the world's hydrocarbon reserves, Rodr�ez said the organization "will continue to be a decisive factor in guaranteeing world energy security."

The minister stressed that OPEC and non-OPEC producers should seek greater cooperation because both groups are coinciding more and more "with our positions to generate new forms of financial cooperation." He also said OPEC should study the creation of a bank to finance the activities of member countries, thus hopefully reducing high financial costs.

"And finally, we need to work, as we already have decided to in OPEC, intensely on the stabilization of the market," he added. "That must be an objective that is not only in the interest of oil-producing countries but also in the interest of consumers."

Market stability will allow producing and exporting countries alike to plan their economies, he said.

Rodr�ez noted that OPEC's recently approved price band system "is a very new system that is being put to the test." He continued: "At this moment, we are receiving pressure from all sides and frequent questions as to why we have not automatically applied the band if prices already have moved above $28/bbl.

"We are not automatons, nor do we act by conditioned reflexes," Rodr�ez said, adding that OPEC is studying market realities and refuses to act hastily. Rodr�ez said this week's OPEC meeting will allow the organization to further analyze the market.

"That will allow us to go to the next meeting of producers and consumers in Riyadh, and it is possible that there, after also having held the second OPEC heads of state summit in Caracas...We could reach some beneficial agreements both for producers and consumers," the minister said.

"Therefore, I believe that there are good reasons to wish OPEC a long and fruitful life."

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