OPEC – Increasing activity in 2011

OPEC was formed to maintain the price of oil at a level most beneficial to its membership considered as a whole. The OPEC Member Countries are: Algeria, Angola, Ecuador, ,Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, U A E, Venezuela. The price of OPEC basket which comprises the aforementioned 12 countries crudes stood at 107.00 dollars a barrel on 15.10.2011 according to OPEC Secretariat.

OPEC set up a headquarters in Geneva, moving to Vienna in 1965. The organization moves to new headquarters in Vienna’s First District in late 2009.

The organization was set up to gain greater control over oil prices by coordinating production and export policies, whilst each member retaining ultimate control over its own policy. Together, OPEC members own about two-thirds of the world’s proven petroleum reserves and account for two-fifths of world oil production.

OPEC seeks a stable oil markets, without sudden price changes or excessively high or low prices. OPEC regularly meets with other oil producer and with consumers in an efforts to improve understanding and trust in the oil industry and to seek polices and measures that do not create unnecessary economic hardship for oil producers and consumers.

Energy and oil ministers of OPEC member-countries hold meetings twice a year to discuss the situation on the world oil market and make forecasts for the future. They make decisions on stabilizing the market and changes to oil extraction levels according to market demands.

In 14 September 2011 the Organization has turned out 51 years since its establishment. OPEC was established at the Baghdad Conference on 14 September 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. OPEC is battered by the global recession and now has oil-producing rivals, but it has suffered and overcome other bad times in its 51 years, and now the cartel fulfills 35% of the world’s demand for oil.

Oil Reserves

According to current estimates, more than three-quarters of the world’s proven oil reserves are located in OPEC Member Countries, with the bulk (70%) of OPEC oil reserves in the Middle East. OPEC Member Countries have made significant additions to their oil reserves in recent years by adopting best practices in the industry. As a result, OPEC’s proven oil reserves currently stand at 1068 billion barrels (77% of total world). During the period from the year 2000 to the end of 2010, OPEC Member Countries added 310 billion barrels to their total oil reserves, substantially more than the reserve additions made by other crude oil producers.

OPEC Upstream Capacity

OPEC Member Countries continue to invest to expand upstream capacity to ensure that the world economy benefits from regular and secure oil supplies. According to OPEC’s projects database, the “OPEC World Oil Outlook 2010” indicates that around 140 projects with a cost of $155 billion are expected to come on-stream over the period to 2014. These projects will result in net crude oil capacity additions of around 3.0 mb/d by the end of 2014. On top of this, over 2 mb/d of net NGL capacity additions is anticipated. This will lead to an increase in OPEC spare capacity of around 6 mb/d.

Downstream Capacities

OPEC estimates show that refining capacity in member countries will expand by more than 2 mb/d by 2015. This includes around 1.5 mb/d of additional distillation capacity and another 0.6 mb/d capacity in condensate plants within the national borders, thus passing 10 mb/d of downstream capacity by 2015. Moreover, substantial investments are on the way as part of equity shares in refineries outside national borders.

OPEC Downstream Capacity (Existing and Projected)

The period 2004-2008 marked by rising oil prices, refining tightness and high margins, brought forward an increasing number of refining projects worldwide. However, following the onset of the financial crisis in September 2008, several factors have been acting to delay, postpone or even cancel some projects, including difficulties in arranging for debt and equity financing, expectations of further falls in construction costs and the prospect of sharply reduced oil demand across almost all world regions. Downstream investments in OPEC Countries are also affected by these developments.

Despite large uncertainties over future demand for refined products and the resulting requirements for refining capacity expansions, OPEC countries continue with the implementation of several major refining projects aimed at supporting market stability. However, these efforts will only be successful if they are complemented by adequate downstream investments by international oil companies and the consumer countries.

Recent secretariat estimates show that OPEC countries will expand their refining capacity by more than 2 mb/d by 2015. This includes around 1.5 mb/d of additional distillation capacity and another 0.6 mb/d capacity in condensate plants within the national borders, thus passing 10 mb/d of downstream capacity by 2015.

The cumulative investment required for the realization of projected downstream capacity in OPEC Member Countries until 2015 is estimated at around $40 billion. The larger part of this investment is expected to take place in the period after 2011 and is related to major projects coming on stream towards the end of the forecast period. This is part of OPEC’s ongoing efforts to support market stability by supplying required products to consumers.

Iran resides current OPEC Session

For the first time in 36 years the 12 members of OPEC have approved an Iranian Oil Minister, Said Masoud Mir-kazemi, as the chairman of their organization for 2011. The decision was made at the 157th session of OPEC, which started on October 14.

OPEC 157th, 158th and 159th Conferences

OPEC has reviewed the current oil market conditions and future prospects in each of its 157th conference convened in Vienna on 14 October 2010, and in the 158th Conference convened in Quito on 11 December 2010, and in the 159th conference convened in Vienna on 8 June 2011.

OPEC Building

The organization observed that oil market has been marked by high levels of volatility and an upward trend in prices to reach US$120 for OPEC Reference Basket in April before its reverse to loose $15 a barrel.

A deeper insight into the recent volatility shows that the speculative activity on the Nymex has reached record highs. Excessive speculation in the futures markets increases volatility.

Taking currency movements and the inflation in consideration, the OPEC Reference Basket rose by only 16%, while in nominal terms the Basket has risen by 24% since the start of the year.

The early onset of winter had an initial impact on the situation. So did forecasts of a quicker rise in oil demand and a surge of investment flows into commodity markets including crude. However, the market outlook has been dominated more recently by the political developments in the Middle East and North Africa as well as the disasters in Japan.

Very much due to OPEC’s efforts, the world remains well-supplied with oil, with ample spare capacity and adequate stock levels. However, it appears that there is not enough effective spare capacity in the downstream sector, which has recently led to further spread of sweet and sour crudes. Despite that shortage in downstream capacities, generally, the basics are right for market stability because the refinery utilization rates are low.

Whilst economic recovery with its main drivers particularly China and India is underway, there is still considerable concern about the magnitude and pace of this recovery, especially in the major industrialized countries of the OECD. Also there are still some notable points of concern including the persistently high level of unemployment, the sovereign debt crises in major OECD countries, potential overheating in many emerging economies and rising inflation across the globe. These important factors can interact with each other to produce a return to steady economic growth.

Accordingly, the Conferences decided to leave current production levels at 24.854 million Barrels per day unchanged. In taking this decision, the Conference reaffirmed its determination to ensure reliable supply to the market, at reasonable and fair prices, supported by an adequate level of spare capacity for the benefit of the world at large.

Indeed, the Organization remains cognizant of the consuming countries’ concerns over security of supply and its members are committed to optimizing the pace of their capacity expansion so that they are able to respond to expected growing global demand and increased calls on OPEC crude in the future.

At the same time, Member Countries remain firm in their intention to swiftly respond to any developments which might jeopardize oil market stability and their interests.

Oil market stability is the responsibility of all parties, producers and consumers alike. All the world benefit from stability and so all must share OPEC in achieving lasting stability in oil markets.

Joint conclusion of: EU-OPEC Energy Dialogue

The 8th Ministerial-level meeting of the energy dialogue between the European Union (EU) and the Organization of the Petroleum Exporting Countries (OPEC) took place in Vienna on 27 Jun 2011. The dialogue was set up in 2005 and led to fruitful discussions and diverse joint activities between them. This has resulted in a greater awareness of the need for closer consumer-producer cooperation at all levels.

The energy dialogue is particularly important in the international oil market today, given the renewed increase in price volatility, which impacts all parties in both the short term and the medium and longer terms, especially with regard to the adverse effects on energy investment. The energy dialogue has been an effective platform for discussion of the impact of financial markets on oil price volatility since 2006, underlining the concern of both parties about this issue.

OPEC made a presentation on oil market developments and prospects, and this highlighted the robust rebound in the global economy in 2010, albeit at an uneven pace across different regions. The momentum, however, is expected to moderate this year, due to such issues as debt burdens in some parts of the EU region, inflationary pressures in major economies and prolonged unemployment, thus creating downward risks with regard to the level of oil demand in the near future. On the supply side, the physical market continues to be supported by above-average trend growth in major producing regions, as well as sufficient stock levels. Additionally, OPEC continues to offer an adequate level of spare capacity for the benefit of all.

The EU addressed the issue of the impacts of recent developments on EU energy supplies and policies, including offshore safety. The impact that the unrest in some parts of the Middle East-North Africa (MENA) region has generated on energy prices, energy policies and energy security was underlined, as well as the subsequent sharp rise in benchmark crude prices since the beginning of the unrest. Current EU policy developments were then described, with a particular emphasis on the following three: Energy Roadmap 2050, internal energy market and offshore safety.

OPEC made a presentation on its long-term strategy, together with an assessment of the long-term oil outlook. In the reference case, oil is expected to remain the leading fuel type in satisfying the world’s growing energy needs, with oil demand steadily growing and oil resources largely sufficient. Alternative scenarios paint a rather different picture.

Both parties agreed on the importance of sharing information and data, they also reiterated the benefits of continued participation in the Joint Organizations Data Initiative. They also agreed with the joint EU-OPEC activities proposed for the year 2011/2012 including a workshop, Energy Technology Centre, and a roundtable on oil and gas exploration and production activities. A report will be submitted to the ninth Ministerial Meeting, which is scheduled to be held in Brussels, Belgium, in June 2012.

5th OPEC International Seminar

The 5th OPEC International Seminar will take place at the Hofburg Palace in Vienna, Austria, on 13-14 June 2012. The theme of the seminar, with addresses expected from OPEC and non-OPEC Ministers, Chief Executives of international oil companies and leading academics. The OPEC International Seminar which takes place every two years is now recognized as a major event on the energy calendar.