August 2011, No. 61

OPEC Exclusive

OPEC Marks 50th Anniversary in Tehran

"We are trying to work closely with the EU and other countries in order to assure stable oil supply to those countries."

Secretary-general of Organization of Petroleum Exporting Countries (OPEC) traveled to Iran to take part in ceremonies marking the 50^th anniversary of the organization. He said, "Iran is an important country, so I made it here despite bad health. I am honored to be in a country which was a founder of OPEC."

Abdullah Salem al-Badri is from Libya and became elected secretary-general through consensus. For three years, OPEC was without a secretary-general because Iran claimed the post and other members disagreed. Finally, al-Badri was chosen as a moderate candidate. He said, "Since 50 years ago we have been able to achieve a lot in OPEC. Before establishment of OPEC, oil majors did not care for the rights of producing countries, but after it was established, oil producing countries got together despite various viewpoints to protect their interests." He added that the ceremony was being held at a time of tumult in international oil market, but expressed hope that using past experiences OPEC will be able to overcome all difficulties. He also emphasized on the need to keep the market stable.

Al-Badri: OPEC is a responsible organization

Al-Badri pointed to the ongoing crises in the Middle East and the tsunami in Japan all of which he said, have influenced the oil market. Without going into details, he expressed hope that a solution will be soon found for such problems. Salem Al-Badri assured the oil market that there was no shortage in production and supply. He added, "OPEC member states can produce 4.5 million barrels of surplus oil. Therefore, we are flexible enough to make up for possible shortages." He stated that the current production level will continue up to December blaming oil price hike on existing concerns in the market and the oil tax levied by consumer countries. He said the organization will try to do its part to prevent oil shortage in the market and do its best to supply consumers.

Al-Badri called OPEC a responsible organization and noted that when oil prices fell due to economic recession, an agreement among members proved effective in 2008. OPEC agreed in its 2008 meeting in Algeria to reduce output when oil prices had fallen about 30-40 dollars per barrel. He said that eradiation of poverty in member countries and protecting their economic, energy and environmental interests in addition to stability in the oil market and sustainable supply were major concerns of OPEC.

The official called for more dialogue among countries on oil.

"We are trying to work closely with the European Union and other countries in order to assure stable oil supply to those countries." The OPEC secretary-general concluded by saying that Iran as a founding country has always surprised the world with its achievements.

Oil price fluctuation and management of countries

After Al-Badri, the (former) Iranian Minister of Petroleum Seyed Massoud Mirkazemi, who is the rotating head of the OPEC Conference for 2011, took to the podium saying that the main goal of OPEC is to protect the interests of member countries and to stabilize the oil market.

OPEC was established in 1960 according to a proposal by the then Venezuelan minister of petroleum, which was supported by Iran, Saudi Arabia, Kuwait, Iraq and Venezuela. Iran has played a key role in OPEC since its inception. Foad Rohani from Iran was the first secretary-general of the organization. Now, OPEC accounts for 40 percent of total oil output and 80 percent of oil reserves. The Iranian minister said, "We need to respect sovereignty and rights of oil producing countries."

Mirkazemi further noted that the main cause of economic crisis is issuing instruments which have no economic support. He added that this was a major concern for OPEC because the current crisis cannot be the last of its kind. He then asked who is paying the cost of mothballed investments in producing countries to which he answered, "Demand is of the highest importance to OPEC because oil reserves in many countries are past their half-life and need fresh investment. Therefore, security of demand should be assured to guarantee capital return."

Mirkazemi noted that another challenge facing OPEC was the oil price. He said, "One ounce of gold was traded for 35 dollars in 1970 and is now is sold for 1,460 dollars. Therefore, oil price is actually much lower that it was back then." He said the oil price fluctuations have caused difficulties for oil producing countries.

Mirkazemi reflects on negotiation with Iraqis

Referring to investment of surplus capitals of producing countries in bubbly markets of consumer states, Mirkazemi called that trend menacing. Remembering his conversation with an Iraqi official who was proposing an output hike up to 11 million barrels per day, he said, "I asked them why they wanted to produce so much oil and the Iraqi official said they wanted to be the first in the region. This attitude is not good."

Countries make capacities in their oil industries to earn higher revenues when prices are higher. Mirkazemi said nothing about why such investment should not be made in economic infrastructures of a producing country. The Iranian minister of petroleum mentioned speculation as a problem for OPEC and alluding to unilateral output hike by Saudi Arabia and Kuwait, he said that unilateral measures will not help stability of the oil market.

Following the crisis in Libya, Saudi Arabia increased its oil production to stabilize the market. The Iranian minister opined that coordination with all OPEC members was key to stability of the oil market. He then sent out his political message by saying that the current political conditions governing the oil market were not good because oil was an economic commodity. "The world cannot secure energy supply by deploying armies to oil producing countries. I think that politics should be taken out of the oil market…. Iran can beef up energy security in the world," he said.

During the same ceremony a memorial stamp marking the 50^th anniversary of OPEC was unveiled. The Iranian oil minister then joined the press crew after secretary-general of OPEC. Salem al-Badri told reporters that in view of the current developments in Arab countries, if a change in oil market was needed, OPEC would be ready for it. The OPEC secretary-general said oil reserve will hold out for 58 days provided that there are no problems with refineries and OPEC used all its resilience to supply oil.

As for G-8 countries, secretary-general of OPEC called on them to reduce taxes on oil and its products because their revenues were higher than those of oil producers. "Therefore, we ask countries that levy those taxes to reduce them," he said. Answering another question, Al-Badri tried to avoid forecasting oil prices.

Sharq Persian daily asked him about how much of the current oil price was due to political crises and whether the oil price would fall below 100 dollars per barrel by the end of 2011. He said, "We are witnessing a risk of 20-50 dollars per barrel for political crises. In view of conditions in Libya, oil markets are adapting themselves to new conditions. Of course, the Libyan oil is light and sweet and hard to be replaced. It is possible that turmoil may occur in other countries. Therefore, it is difficult to estimate the oil price, but I think that it will not fall below 100 dollars per barrel before the end of 2011."

As for optimal price of OPEC oil, the secretary-general remained silent. However, he said, "Oil price is not determined by OPEC. We need prices which would enable us to make investments and keep the flow of cash." Al-Badri said downturn in oil prices will not benefit producing countries.