WPC: Key international figures disagree on oil price management

Rilwanu Lukman, Secretary General of the Organization of Petroleum Exporting Countries, lashed out Tuesday at government tax policies, which he claimed are the real culprits behind high prices for gasoline and heating oil in major world markets. Responding to Lukman's complaint, IEA Director Robert Priddle said consuming-nation taxes don't affect prices producers receive for crude oil.

Jun 14th, 2000


Sam Fletcher, OGJ Online
Bob Tippee, Oil & Gas Journal

CALGARY�Rilwanu Lukman, Secretary General of the Organization of Petroleum Exporting Countries, lashed out Tuesday at government tax policies, which he claimed are the real culprits behind high prices for gasoline and heating oil in major world markets.

As keynote speaker at the OPEC luncheon during the World Petroleum Congress (WPC) here, Lukman bristled at the criticism that the public and many government officials have heaped on members of OPEC and other oil producers for the high price of crude.

He charged that many consumers didn't get the full benefits of previously low oil prices because of governments that took advantage of price rollbacks to increase taxes on refined products. That's particularly true in the European Union, where taxes account for 68% of pump prices and governments make three times the revenue that producers get from the sale of crude, he said.

In 1999, when oil prices were languishing through much of the year, the United Kingdom increased its tax take on refined products to $96/bbl, up from $80/bbl in 1997 and $64/bbl in 1995, Lukman said. "So when you talk of greater prices, whose fault is it?" he asked rhetorically, drawing applause from the crowd of WPC delegates who overflowed the dining room, with some watching Lukman via television hookups from other parts of the convention center.

Defending OPEC
Rather than a ruthless cartel "out for all it can get" as some critics claim it is, OPEC actually pursues a cooperative policy aimed at supplying much of the oil that the world needs at prices that are fair to both producer and consumer�a policy that it plans to continue, Lukman said.

After years of low oil prices that undermined producers' ability to find and develop new reserves, it's obvious that cheap oil is not good for anybody, he said. On the other hand, OPEC members cooperated by increasing production in April to check the growing price of oil on world markets, Lukman said.

However, he warned that OPEC can't continue to shoulder the responsibility for world market stability alone. With world demand for oil rapidly increasing and non-OPEC production remaining essentially flat, OPEC members will have to invest billions of dollars to find and develop the oil reserves that will be needed in the future, Lukman said.

Counterattack
Robert Priddle, executive director of the International Energy Agency, responded to Lukman by complaining about OPEC's management of the oil market.

He said consumers can't be expected to accept production control through collusion.

OPEC members "have taken it upon themselves to manage the market, and that is an awesome task," he said.

Priddle rejected Lukman's call for cooperation between producers and consumers comparable to the output coordination that has developed between OPEC and several non-OPEC producers.

The implication of such a hope, he said, is that consumers offer security of demand in exchange for security of supply. And the governments of consuming nations don't think they can affect demand to such an extent.

Many of them, he noted, have been deregulating markets for natural gas and electricity.

"It's not realistic to believe that they are going to go in the opposite direction with oil."

Responding to Lukman's complaint about high taxation of oil products in Europe, Priddle said consuming-nation taxes don't affect prices producers receive for crude oil.

He also criticized OPEC's unofficial plan to keep prices within a band by adjusting production when prices stay outside the target range for more than a set period. Nothing authoritative has been written on the plan, he noted. And the OPEC president has no authority to enforce it.

"It's a flimsy basis, a covert basis, on which to try to manage a market important to us all," he said.

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