OPEC Secretary-General Abdullah al-Badri is urging the cartel’s 12 members to maintain production and exploration despite a lower demand for oil.
Yet al-Badri told an energy conference in Dubai on Dec. 14 that he is as baffled as anyone why the price of oil has dropped by so much in recent days. “The fundamentals should not lead to this dramatic reduction [in price],” Badri said, according to his Arabic-English interpreter.
As for sustained exploration and production during a period of low demand, al-Badri said such a strategy would prevent a shortage of supply once demand eventually is restored. He said oil customers, particularly the United States, will need OPEC’s oil for years to come.
It was the first time that al-Badri had commented on the state of oil prices since Nov. 27, when OPEC, led by Saudi Arabia, refused to cut production levels from 30 million barrels a day in the face of an oil glut and its attendant price drop.
It also was the first comment by anyone in OPEC about the cartel’s own forecast, issued Dec. 9, showing that next year’s demand for oil will decline to 28.9 million barrels per day, 280,000 barrels lower than the previous month’s forecast and the lowest in 12 years. Reports by other energy monitoring agencies show similar drops in demand.
Al-Badri said he and his colleagues were searching for a price point that would serve both producers and their customers, but had yet to settle on a figure. Meantime, OPEC isn’t due to hold its next meeting on production levels until June 5. Given the current price chaos, he was asked, does the cartel need to hold an emergency meeting before then? He smiled and replied, “I don’t know.”
The cause of the glut and the price drop was a production increase of about 6 million barrels per day in countries that aren’t OPEC members as well as speculation by oil traders, al-Badri said. But he expressed faith that prices eventually will stabilize on their own. He said he expects prices to stabilize in mid-2015, giving the cartel a better idea about “the required measures” it should take.
Al-Badri also dismissed reports that OPEC’s decision to keep production high was part of a price war against oil-producing countries that aren’t members of the cartel. “Some people say this decision was directed at the United States and shale oil,” he said. “All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect.”
At the same conference in Dubai, Suhail al-Mazrouei, the energy minister for the United Arab Emirates, said he believed OPEC wouldn’t shift its position on production levels even if oil prices, now hovering around $60 per barrel, plunge to as low as $40 per barrel. And al-Mazrouei said OPEC won’t even consider such a session for at least three months.
“We are not going to change our minds because the prices went to $60 or to $40,” al-Mazrouei told Bloomberg News on the sidelines of the Dubai gathering. And he agreed with al-Badri that oil prices will find their own level. “We’re not targeting a price… The market will stabilize itself without OPEC’s intervention… We need to wait for at least a quarter to consider an emergency meeting,” he said.
By Andy Tully of Oilprice.com
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