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Saudi adviser says OPEC cuts have supported oil prices
DUBAI
Petroleumworld.com, Mar 31, 2009
OPEC's decision to cut crude production by a combined 4.2 million b/d last year put a floor under oil prices and prevented a collapse, balanced the oil market and prevented an "unusual and uncontrolled" build in stocks, a senior Saudi oil adviser said in a comprehensive review of the market.Ibrahim al-Muhanna, an adviser to Saudi Oil Minister Ali Naimi, said in a paper presented to a March 28 meeting of the Organization of the Arab Petroleum Exporting Countries that OPEC's decision to cut had come under "harsh" attack from Western oil consuming nations, including the US, Britain and consumer watchdog the IEA, which saw the move as "unreasonable." "Time has proved OPEC right and its critics wrong," wrote Muhanna.
Despite OPEC's "realistic" decisions, non-cooperation by other main oil producers outside OPEC and the extent of compliance by OPEC members with previous and current production cuts are still key issues, he said.
These are being compounded by doubts within some producing countries and differences between one secondary source and another as to the level of compliance by OPEC members, Muhanna said, noting that in some instances the difference in estimates of compliance is more than 1 million b/d.
"This is having an impact on OPEC's decisions and its credibility not only in the outside world but within OPEC itself," he said.
"Notwithstanding this problem, the organization's decisions to reduce production contributed to preventing a further unusual and uncontrolled rise in commercial stocks while also contributing to restoring market balance and putting a floor under oil prices and preventing a collapse," said Muhanna, who is a long-standing member of Saudi Arabia's OPEC delegation.
Reviewing developments in the oil market in light of the financial crisis, Muhanna said the speed at which energy demand will recover depends on whether the contraction in the global economy is due to a correction or was just a normal economic cycle, which typically lasts 18 months.
"If the crisis ends with the end of this year, then demand for oil will start to grow from next year but at a slower pace than it has done in previous years.
However, if the crisis lasts another year or two, then demand for petroleum is not expected to start rising until 2011 or even 2012," he said.
"The other side of the equation is the type of the current crisis. Is it a correction or an economic cycle? And there is a big difference between the two and their impact on petroleum. If it is the latter, then the global economy, including demand and the prices of various commodities such as petroleum will continue at current levels--$40-$50/b for crude oil--for several years," he said.
"However, if it is just a normal economic cycle, oil prices will start to move up again, probably starting the end of this year or early next year to around $70-$80/b." "It is obvious that the international oil market and the industry in general has entered a critical turning point and faces big challenges, some of them related to the sharp rise and subsequent fall in oil prices," he said.
As well as dealing with continued price volatility, "we are seeing a return of a wave of hostility from some Western countries under the guise of energy security, protecting the environment and fighting global warming," Muhanna said, in apparent reference to US President Barack Obama's pledge to cut dependence on foreign oil, particularly Middle Eastern oil.
"As a result of the economic crisis and the policies called for by Western states as far as lessening dependence on oil is concerned, demand for petroleum is not expected to grow at the same levels as the last 10 years when demand rose from 73 million b/d in 1997 to 86 million b/d in 2007," he said.
Demand this year is expected to fall by more than 1 million b/d, the biggest decline in the last 26 years, he said. Global demand for 2008-2009 will fall by between 1.5 and 2 million b/d.
The future energy map will look very different, said Muhanna. In the 30 OECD states, where demand peaked three years ago and then began to decline as their economies matured, demand for oil will have fallen by 4 million b/d since 2005, and their share of global consumption will fall from 63% in 2000 to around 46% in 2020.
Emerging economies such as China, India, Brazil, which are still enjoying strong economic growth despite the crisis, are expected to see this continue, pulling their oil demand up at the same time. Demand will also driven by growth in the Arab oil exporting states of OAPEC, and in particular in countries where oil products consumption is high due to fixed prices not linked to international prices.
However, Muhanna said these prices were not sustainable and urged Arab oil producers to link domestic product prices to international levels, except for products supplied to industries that give added value. In general, supply is expected to grow in line with demand over the next few years.
Supply from some regions such as Mexico, Russia, the North Sea, Egypt, Syria and Yemen is expected to decline, with volumes rising from the Caspian Sea, West Africa and Brazil.
Story by Kate Dourian from Platts
-kate_dourian@platts.com
Platts 03/30/2009 17:17
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