Oil In A Week (Jeddah Oil Conference: Parameters and Expectations)
Al-Hayat Al-Hayat - 22/06/08//
International oil markets await with anticipation the outcomes of the Jeddah Conference, the first of its type to bring together producers and consumers to discuss oil prices. The conference is sponsored by King Abdullah with the participation of almost 38 states in addition to a number of international organizations from the oil sector (OPEC, IEA, World Energy Forum), and about 30 major oil and financial institutions.
The conference is the second international oil convention to be held in Saudi Arabia within months since Riyadh had also hosted the OPEC Summit and donated $750 million to fund research on the relationship between oil and climate and the impact of oil consumption on global warming.
The significance of the Jeddah Conference lies in the fact that it is the states of producing and consuming nations, rather than the markets, that will attempt to determine the causes of the rapid and abnormal rise in oil prices as well as the means to deal with such rises in the future in the hope of limit the damage inflicted upon the global economy as a result of the current price hike.
The parameters of the Jeddah Conference are both clear and known. On the one hand, there is the traditional view of the producing nations which blames speculations in money markets for this rapid and incredible rise in prices in addition to the fact that consuming countries refuse to build sufficient refineries to meet the increasing demand for fuels in their countries.
On the other hand, there is the perspective of consuming nations which blame OPEC's failure to increase its production to increase supplies to the market or to supply sufficient oils for the commercial reserves set by consuming nations. All this keeps the oil markets on the edge and pushes prices upwards. In other words, producing nations are not accused of any intentional shortages in the market, but rather, of failure to provide sufficient supplies to assure the markets of the availability of sufficient oils in the future such that prices start to decline.
Old Disputes
These are old disputes but they reveal the difference in interests between the two sides. These disputes have currently been pushed to the surface now by the rapid rise in prices which was planned by neither side. It is worth mentioning that over the past few weeks, Congressional committees in the US held long sessions to discuss the issue of speculations and their impact on oil prices. The issue has recently upset a few European ministers of finance to the point that they contradicted the statements of their US colleague who had understated the impact of speculations on the price hike.
The discussion of these points of view is expected at the Jeddah Conference, but it is also expected that the participants will go beyond these excuses and claims to reach some form of understanding or else the whole conference will be pointless. This means reaching midway solutions that will satisfy both sides since neither side is happy with the rapid price hikes and their negative implications on the global economy.
Outlooks
What are the possible outcomes of this conference? It is expected that OPEC states or at least some of them, will commit to raising production. Naturally, Saudi Arabia will assume most of the responsibility since it is the only state with a surplus production capacity sufficient to pump significant supplies into the market. Moreover, Saudi Arabia has the flexibility to supply the market needs of heavy, medium and light oils, and this capacity will further expand once the long-delayed development of the massive Khorasaniyya Field is complete by the end of June by 500,000 barrels of light oil a day.
This decision, if taken, does not imply the existence of a shortage in the markets, but rather, it will be a step to assure consumers about the presence of sufficient supplies of oil to eliminate any fears of shortages. These assurances are supposed to push the current price level downwards.
It is also expected that the producing nations will demand restrictions, regulations, and ceilings for speculative transactions in money markets rather than leaving them open-ended as the case is today. It is also expected that the US administration will express its reservations to such demands since they affect the freedom of money movement in international money markets.
In addition to this, the proposal to rush the construction of refineries in industrial nations to ensure the sufficient supplies of fuels is expected to be raised.
Naturally, it is not likely that all these propositions will be implemented overnight since they require consultations with other nations and new legislations, not to mention raising the necessary funds.
It is expected that an international economic institution will be asked to study the causes of the rapid rise in oil prices and to hold another session to review this study.
Regardless of the outcomes of the Jeddah Conference, especially if these reflected a climate of positive understanding among producers and consumers, it is likely that a ceiling will be imposed to bring prices under control in the medium and long terms.
*Energy Expert
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