OPEC Chief: Don’t Blame Us for Rocketing Oil

 

These should be the best of times for Abdallah Salem El-Badri, secretary-general of the Organization of the Petroleum Exporting Countries (OPEC). International oil prices have risen to new records, and the ceiling is nowhere in sight.

 

But El-Badri is downbeat about soaring oil prices. “Our policy is not to go to extremes,” he told . “We want neither radically high nor low prices. We would like to see moderate, reasonable oil prices for suppliers and consumers.”

 

El-Badri led an OPEC delegation to Beijing on October 24-5 for the second, high level OPEC-China Roundtable on Energy. According to an OPEC press release, the delegates met with representatives from the Energy Bureau of the National Development and Reform Commission (NDRC), the Ministry of Foreign Affairs, and three major Chinese oil companies. El-Badri and Zhao Xiaoping, energy bureau director, co-chaired the roundtable. Participants explored upstream and downstream cooperation in the oil industry between OPEC member countries and China.

 

El-Badri, a former Libyan oil minister, called current relations excellent and said he welcomed China’s investments in OPEC states. In fact, delivering that message was a primary goal for El-Badri’s visit -- his first to China. He also stressed the strong interest among OPEC member nations for investing in China, especially in downstream oil and petrochemical businesses. He further indicated that OPEC would not restrict member country investments in China.

 

The roundtable continued an official energy dialogue between OPEC and China that began in December 2005, when OPEC’s then-Secretary General and Kuwaiti Oil Minister Sheik Ahmad Fahad al-Ahmad al-Sabah visited China for meetings with NDRC Director Ma Kai.

 

El-Badri sought to separate the issues of rising oil prices and China’s soaring demand. China’s sustained and rapid economic growth should not be held responsible for higher prices, he said. “China has 1.3 billion people, and they need more energy to improve their living standards,” he said. “What’s wrong with that?”

 

Since beginning his three-year term as OPEC’s helmsman in early 2007, El-Badri has faced enormous challenges, from volatile politics in the Middle East to skyrocketing oil prices.

 

interviewed El-Badri on a day when OPEC’s oil basket price reached US＄ 80.55 a barrel, and New York Mercantile Exchange crude oil futures broke US＄ 90 a barrel. The upward climb toward US＄ 100 a barrel has made many people, including El-Badri, restless.

 

El-Badri said several times that oil prices were too high, and that since supply and demand haven’t significantly changed this year, such price levels could not be justified. Instead, he said, rocketing prices were tied to strained political situations and market speculation.

“Yes, we see that petroleum prices hit US＄ 90 a barrel,” El-Badri said, before hinting at his inability to predict prices. “But when we look at the fundamentals -- supply and demand -- we don’t see anything wrong. Other factors such as the Middle East situation, the U.S. dollar’s depreciation, the subprime loan crisis, and speculative activities should be able to explain high oil prices.

 

“OPEC should not take any action now to change oil prices because they have nothing to do with supply and demand,” El-Badri said. “OPEC would move if there is a real supply shortage or interruption. But now, we can do nothing.”

 

OPEC was founded in 1960 after the former Soviet Union dumped cheap oil on the world market, prompting anxious Western oil companies to adopt a competitive price strategy. Oil exporting companies saw incomes plummet as oil prices fell, and their governments roared to the rescue. Iran, Iraq, Kuwait, Saudi Arabia and Venezuela established OPEC in hopes of restoring prices to pre-dump levels.

 

OPEC’s clout was limited at first; El-Badri recalls that the group’s name was little known in the early days. The oil industry’s status rose later. Actually, El-Badri said he was just looking for a job when he got involved. He was hired in 1965 by the Libyan branch of Esso Standard, now Exxon Mobil, and later served as chairman of the Libyan National Oil Co.

 

Today’s OPEC is much larger – and influential. In addition to the five founders, it now includes Algeria, Angola, Indonesia, Libya, Nigeria, Qatar and United Arab Emirates. OPEC says its member countries produce 40 percent of the world’s oil and 15 percent of the natural gas. Furthermore, OPEC member nations account for 80 percent of the world’s proven oil reserves and 55 percent of the world’s oil exports. OPEC says it “cannot control international petroleum markets” but does not deny the ability to “exert a great deal of leverage on the international oil market.”

 

According to El-Badri, the biggest difference between OPEC then and now is that, in its early era, the industry was dominated by oil companies. Now the industry is dominated by the group’s member countries, which affects foreign investment. “It is good to give opportunities to foreign investors to let them develop, but not control, the oil industry,” El-Badri said.

 

The recent escalation in prices has allowed OPEC to retain control over oil markets. But oil money is nearly the sole source of income for OPEC nations. El-Badri’s challenge, therefore, is to uphold member-state incomes while guaranteeing supply for the global market.

 

OPEC recently raised its target daily quota 500,000 barrels to 27.2 million barrels a day, effective November 2007. “At present, we have no more quotas,” El-Badri said. “I hope this will cool the market.” Historically, OPEC production changes had a direct impact on global prices, but that influence faded after 2002. OPEC’s daily production quota was 24.5 million barrels a day in early 2003, and its basket price was US＄ 30 a barrel. Since then, OPEC has continuously increased production, up to 28 million barrels a day. Yet prices have continued to soar.

 

El-Badri said OPEC maintains a surplus production capacity of 4 million to 5 million barrels a day. Member states are also investing about US＄ 150 billion on 120 projects in hopes of adding 6.7 million barrels of daily surplus production capacity. OPEC plans to add 9 million barrels of daily surplus production by 2020, but reaching that goal will cost up to US＄ 500 billion. 

 

OPEC has not found it difficult to form member-state coalitions although, like a family with many children, it’s had to grapple with the inevitable bickering. El-Badri, a father of five, understands the dynamics.

 

“In the past, we had a few conflicts and problems,” he said. “But now the relationships are fine. The ministers meet regularly to discuss oil prices and strive to reach a conflict-free conclusion.”

 

The question is, can El-Badri reconcile differences between his OPEC family and the rest of the world?