Mixed messages from Opec's Riyadh meeting
A RARE meeting of heads of states from Opec's members in Riyadh last month was supposed to bring the group together in a show of unity to world oil markets. Instead, comments from the two firebrands of the group, presidents Hugo Chávez of Venezuela and Mahmoud Ahmadinejad of Iran, left the cartel and its observers confused about what Opec's agenda is.
With the International Energy Agency (IEA) claiming oil demand is being undermined by high prices, the statement Opec released following the meeting was full of promises to provide the world with "balanced energy markets" and "competitive petroleum prices". The cartel, however, continues to insist that world markets remain well supplied – an argument with some justification, given well-endowed US oil stocks – and that the blame for strong oil prices lies with "speculators" and geopolitics.
That is a message that the group's most important member, Saudi Arabia, has reiterated in the recent months. However, the effort to ensure Opec does not become the bogeyman of consumer governments, especially the US, suffered when Chávez and Ahmadinejad suggested the cartel could become more political and effect a re-balancing of world power.
Speaking after a bilateral meeting with Ahmadinejad in Tehran before the Riyadh summit, Chávez said their countries were "two brother countries, united like a single fist". God willing, he said, "with the fall of the dollar, the deviant US imperialism will fall as soon as possible too". After the summit, Ahmadinejad echoed Chávez's comments, claiming that the dollar now had "no economic value".
That might have played well privately to other members of Opec, but when the two presidents proposed during the summit that the group start pricing its oil in a basket of currencies – but not the dollar – it was rejected by Saudi Arabia, which said that even to discuss such a proposal risked more devaluation of the currency. Its fall has been one force behind oil's bull-run, as producers have been forced to increase prices to account for the dollar's depreciation. Analysts say the depreciation has also made members more reluctant to increase oil supply.
Before predicting that oil prices could rise to $200 a barrel if the US were "crazy enough" to attack Iran, Chávez also said Opec should become a "political" power "at the vanguard of the fight against poverty". Those comments, in a speech to the other heads of states, were rebuffed by King Abdullah, of Saudi Arabia, the US' staunchest ally in the group. "Opec has always acted moderately and wisely," he said. "Oil is an energy for development. It should not become a tool for conflict and emotions."
Those sentiments might have been behind Opec's assuring words about climate change. In its communiqué, the group addressed for the first time its own response to the problem. Opec would work with other governments to develop cleaner fuels and address global warming, the statement said.
But with oil prices around $95/b as the leaders met, it was the direction of the market that captured most attention. "We are going down uncharted territory and everyone should be cautious," said Odein Ajumogobia, Nigeria's oil minister. He was one of several Opec ministers who seemed uncomfortable with the strength of crude prices on international markets.
The worry for Opec is that such prices will erode demand for oil. Last month's oil market report from the IEA revised downwards by 0.5m barrels a day (b/d) the forecast for demand in the fourth quarter of 2007. The agency says the lower-than-forecast growth means that in 2007 as a whole demand will average 85.7m b/d – a year-on-year increase of just 1.2%. In 2008, growth will be 2.3%, averaging 87.7m b/d. Claiming that the prospect of $100/b oil could be the "turning point" in world markets, the IEA says the "$70/b rise in prices since 2002 is ... having a cumulative effect."