Inconsistent Interests of OPEC and the Industrialized Nations
Walid Khadduri Al-Hayat - 24/06/07//
Several yearly and monthly oil reports have been recently issued that reflect in their content and details disagreement in viewpoints and dissimilarity in the interests between oil-producing and oil-consuming industrial countries.
The 'BP Statistical Review of World Energy Report 2007' is one of the important sources that give a full picture of the status of energy worldwide. This year's report indicates that the world gross domestic product (GDP) increased by 5.3% in 2006, marking the highest increase since 1973. But despite this high economic growth, the global oil consumption rate fell to 0.7% in 2006, compared to 1.5% in 2005.
These rates reflect the following facts:
Despite the continuously increasing oil prices over the past five years, the world economy has improved. But this improvement was not reflected in the same rates on oil consumption due to the diligent attempts by the industrial nations to reduce the dependency on oil as a main source of energy.
In other words, these statistics point out that the old forecasts that the world economy would fall with the increase in oil prices were not true during that period. At the same time, it became certain that the attempts to reduce the dependence on oil are serious and in full swing, especially in the light of the increasing prices and the political unrest in the Middle East region. This viewpoint is sustained by the current booms in stock markets worldwide although oil prices have reached up to about $70 per barrel.
The Dow Jones industrial Average, the US benchmark index, rose more than 9% compared to its level in the same period last year. The report said that the growth in energy demand was weakest in the States of the Organization for Economic Cooperation and Development, i.e. Western industrialized nations, as this group's oil consumption was about 407,000 barrels per day over the past year, compared with 2005. Meanwhile, the biggest growth in energy demand was scored in Asia, Africa, the Middle East and Latin and Central America.
The report also highlighted that China accounted for most of the growth of demand for energy last year, when its consumption increase rate accounted for about half of the increase of world energy consumption.
The BP report highlighted that the world's oil reserves fell in 2006, but that there were still oil reserves enough for 40 years of the current consumption rate patterns are maintained. The most crucial reason for the decline in world reserves in 2006 is attributed to Kuwait. The Kuwaiti oil minister asserted in May that the Kuwaiti oil reserves were only 48 billion barrels, compared to a formerly announced official figure of 100 billion. This statement confirmed what weekly oil specialized magazine 'Petroleum Intelligence Weekly' had published in 2005.
The accuracy of oil reserve figures represents a fundamental point of disagreement between oil producing and consuming countries. The reserve figures are usually vague because it is not clearly stated whether the figure meant confirmed or potential reserves. The industrialized nations complain that the OPEC reserve figures were rapidly and substantially increased in the mid-1980s in order to benefit from the organization's quota system. They say the figures did not have any essential modification since then and until today despite high production rates.
The industrialized nations also complain about the high secrecy producing countries maintain about their reserve figures, and how they calculate it.
It is noteworthy here that Mexico was the only exporting state to contract with an independent accounting and auditing office to confirm its reserves figure. The official Kuwaiti admission to the low figure published by a specialized oil bulletin is the second precedent in this regard.
Consequently, the reserves figures of a certain country change constantly depending on the technology used in oil exploring and excavation, annual production, and the geological nature of the country.
The International Energy Agency (IEA) has recently issued a monthly report about OPEC the world oil market. The IEA, which stands for the interests of consuming nations, reflects, as expected, its fears of soaring oil prices. It constantly points out the increase in demand for oil, and then invites OPEC member states to increase production, although production in some of these countries is at full capacity.
Although OPEC has repeatedly dismissed the IEA's excuses for increasing production, it replies that the market has enough crude oil, and that the problem of high prices lies in the chronic shortage of oil refineries in the industrialized countries. This problem must be resolved by industrialized nations through adopting more flexible laws and urging oil companies to give the priority to building refineries, in spite of their law profits in general, and not to focus only on achieving high profits for shareholders.
The latest IEA report for June included a new argument against OPEC states, which is that these countries do not have sufficient production capacity surplus to cope with emergency industrial and political crises. This 'recent' shortage in production capacity surplus is the reason behind skyrocketing oil prices worldwide. It is clear that what the IEA is actually calling for is that the producing countries, not international oil companies, pay for building production capacity surpluses, which are only used in emergencies, more than what these countries are already paying at the present time.
Also, the monthly OPEC report of June on the oil markets was issued. The report responded in several parts to the previous allegations. It frankly stated that the organization had taken the initiative in the recent past, and remains ready to avoid any future shortfall in crude oil markets. It stressed that markets were continuously provided with whatever quantities they needed of oil, and that there was no deficit to mention.
It is noteworthy that the reason why the report focused on this point is to push OPEC to stress it was doing its best to boost the balance between offer and demand worldwide and that it was not responsible for the price increase, which is mainly caused by the chronic shortage in oil refineries in the industrialized nations.
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