Setting the record straight over prices OPEC is committed to ensuring that an orderly oil mar- ket supports sound global growth, as the world recovers from the deep economic malaise of the past few years. The latest studies from our Secretariat in Vienna pro- C o m m e n t a r y vide insights into the recent spell of oil price volatility, as Encouragingly, well as identifying areas of possible concern in the com- in the event of a ing months. strong rise in demand or After a relatively high degree of price stability in the a sudden supply disruption, first ten months of last year, with crude settling at levels OPEC holds around 6 million which won wide acceptance among producers and con- barrels/day of spare capacity which sumers, there was a clear shift of trend in early November. could quickly be made available to the This saw the price of our Reference Basket surge past market. Indeed, expected demand for OPEC $80/barrel, slip back a bit and then rise strongly to the crude in the first half of the year will be slightly high 80s’ at the start of December. By the final week of lower than its current output, which would result in a that month, it had topped $90/b and then climbed past growing stock cushion. $94/b in the second week of the New Year. All in all, with the overall economic situation be- Some observers were quick to seek parallels with coming brighter over the past year, the expectations of 2008 — when the Basket price on the first day of trading a sustained improvement, particularly in such emerging that year was only $2/b above the $89.81/b of January economies as China and India, will continue to influence 3, 2011 — and express concern about a repeat of the oil market direction. troubling events of that year. An often-asked question Nevertheless, important risks remain which could is whether prices will persist at these higher levels or affect crude oil prices over the coming months. These whether this is only a temporary phenomenon and there include: rising sovereign debt concerns in some OECD will be a suitable correction over the coming weeks. countries; weaker-than-expected oil demand growth; Let us now address the underlying issues. excess crude and product inventories, both onshore A key factor in the price surge has been the early on- and offshore; and higher spare capacity in both the up- set of winter weather. This led to stronger heating oil de- stream and downstream sectors. We must be attentive mand, as well as a decline in crude oil stocks above the to all these possibilities. seasonal average. Some forecasts calling for a revival in Quite clearly, however, while there are some signifi- crude oil demand and a perceived potential for market cant uncertainties around, the overall picture is a posi- tightness over 2011 have also played a part. Additionally, tive one. And the position will become clearer with the bullish market sentiment and a surge in investment flows end of the winter season, as the market heads into the into major commodity markets, including crude, have lower-demand second quarter. Until then, there is an ad- pushed prices higher; this general increase in commod- equate cushion of supply in both inventories and spare ity prices has been due to expectations of a continued capacity to meet the market’s needs. improvement in the global economy. And so, as OPEC Secretary General, Abdalla Salem El- Turning to stocks, these point to a continued well- Badri, said on our website on January 18: “Any assump- supplied global market. Despite a stronger-than-usual tion that there is tightness in the market … is incorrect.” seasonal crude draw, US crude inventories remain com- And he was emphatic in adding: “Supplying the world’s fortably above the five-year average; product stocks also media with unrealistic assumptions and forecasts will show a surplus over the seasonal average. At the end of serve only to confuse matters and create unnecessary the year, other OECD regions, such as Europe and Japan, fear in the markets. Ultimately, this is adding to volatility even experienced counter-seasonal builds. Some extra in the oil market and destroying the stability that OPEC barrels also remained available in floating storage. works so hard to support” (see story on page 4). Spotlight 4 Oil fundamentals in balance, no need for more supplies — El-Badri C o n t e n t s Conference Notes 8 158th (Extraordinary) OPEC Conference: Ecuador steals the show Ecuador’s President confident OPEC can offer effective solutions to global challenges (p16) Cautious optimism over economic recovery — Pástor-Morris (p22) Hats, crafts and Panamas (p26) The colossus Cotopaxi (p28) The Environment 30 Climate change meeting in Mexico: Can do in Cancun OPEC seeks fair and equitable solution on climate change — El-Badri (p33) Publishers OPEC Membership and aims OPEC OPEC is a permanent, intergovernmental Organization of the Petroleum Exporting Countries Organization, established in Baghdad, on September Helferstorferstraße 17 10–14, 1960, by IR Iran, Iraq, Kuwait, Saudi Arabia 1010 Vienna, Austria and Venezuela. Its objective — to coordinate Telephone: +43 1 211 12/0 and unify petroleum policies among its Member Telefax: +43 1 216 4320 Countries, in order to secure fair and stable prices OPEC bulletin Contact: The Editor-in-Chief, OPEC Bulletin for petroleum producers; an efficient, economic and Fax: +43 1 211 12/5081 regular supply of petroleum to consuming nations; E-mail: [email protected] and a fair return on capital to those investing in the industry. The Organization comprises 12 Members: Cover Web site: www.opec.org Qatar joined in 1961; SP Libyan AJ (1962); United This month’s cover depicts a colourful costume Visit the OPEC Web site for the latest news and infor- Arab Emirates (Abu Dhabi, 1967); Algeria (1969); worn in Ecuador, which hosted the 158th (Extraordinary) Meeting of the OPEC Conference in mation about the Organization and back issues of the Nigeria (1971); Angola (2007). Ecuador joined OPEC December 2010 (see page 8). OPEC Bulletin which are also available free of charge in 1973, suspended its Membership in 1992, and in PDF format. rejoined in 2007. Gabon joined in 1975 and left in 1995. Indonesia joined in 1962 and suspended its Vol XLII, No 1, January/February 2011, ISSN 0474–6279 Hard copy subscription: $70/year Membership on December 31, 2008. Food for Thought 34 Energy and the food chain — Pretelt de la Vega Newsline 36 Qatar to host first Summit of Gas Producers’ Forum in November PetroEcuador announces three per cent rise in 2011 budget (p37) Iraq to hold bidding round for Nassiriya oil field this year (p38) Saudi Arabia to increase public spending in 2011 (p39) UAE looking to embark on second giant solar project (p40) First cargoes of Ghana’s Jubilee crude oil bought by ExxonMobil (p41) Secretary General’s Diary 42 OPEC Fund News 44 Secretariat Activities 43 An institution with a noble mission celebrates 35th Anniversary Cycling for Gaza 50 Market Review 52 Noticeboard 78 OPEC/OFID staff members take on challenging cycle trip for charity OPEC Publications 80 Secretariat officials Contributions Editorial staff Secretary General The OPEC Bulletin welcomes original contributions on Editor-in-Chief/Editorial Coordinator Ulunma Angela Agoawike Abdalla Salem El-Badri the technical, financial and environmental aspects Director, Research Division Editor of all stages of the energy industry, research reports Dr Hasan M Qabazard Jerry Haylins General Legal Counsel and project descriptions with supporting illustrations Associate Editors Keith Aylward-Marchant, James Griffin, Dr Ibibia Lucky Worika and photographs. Alvino-Mario Fantini, Steve Hughes Head, Data Services Department Production Fuad Al-Zayer Editorial policy Diana Lavnick Head, Finance & Human Resources Department The OPEC Bulletin is published by the PR & Informa- Design & Layout In charge of Administration and IT Services Elfi Plakolm tion Department. The contents do not necessar- Department Photographs (unless otherwise credited) Alejandro Rodriguez ily reflect the official views of OPEC nor its Member Diana Golpashin Head, Energy Studies Department Countries. Names and boundaries on any maps Distribution Oswaldo Tapia should not be regarded as authoritative. No respon- Mahid Al-Saigh Head, Petroleum Studies Department sibility is taken for claims or contents of advertise- Dr Hojatollah Ghanimifard ments. Editorial material may be freely reproduced Head, PR & Information Department Ulunma Angela Agoawike (unless copyrighted), crediting the OPEC Bulletin Head, Office of the Secretary General as the source. A copy to the Editor would be Indexed and abstracted in PAIS International Abdullah Al-Shameri appreciated. Printed in Austria by Ueberreuter Print GmbH Secretary General defends OPEC’s production policy S p o t l i g h t S p o t l i g h t Oil fundamentals in balance, no need for more supplies — El-Badri OPEC OPEC bulletin 1–2/11 4 OPEC Secretary General, Abdalla Salem El-Badri (pictured above), has refuted suggestions there is tightness in the international oil market, stating that fundamentals show there is more than enough oil available for consumers. In a recent statement posted on the OPEC website, he said that crude oil prices in early January had been driven by technical matters. In explaining their rise to a near $100/b, El-Badri noted that such factors as the events in Alaska and the North Sea, coupled with the devaluation of the US dol- lar and speculation, had combined to push the price of crude higher. “Any assumption that there is tightness in the mar- ket, however, is incorrect. In reality, commercial crude oil stocks remain well above the five-year average and forward cover stands at around 60 days,” El-Badri said in the statement.