August 2011, No. 61

OPEC Exclusive

OPEC Did Not Give Market Control Over to US

Immediately after appointment as acting minister of petroleum by President Mahmoud Ahmadinejad, Mohammad Aliabadi was assigned to one of the most important oil-related missions. It was very important for Iran to be present in the 159^th OPEC meeting because after 36 years, the country had been chosen chairman of the organization. Therefore, a powerful presence was of utmost importance.

On the other hand, explicit calls form industrial countries led by the United States on oil producing countries to increase output and reduce prices, had made the 159^th meeting of the OPEC of great significance. Management of those conditions needed meticulous planning. The United States was looking to OPEC to solve its economic problems by approving a hike of 1.5 million barrels per day in the output and reducing global oil prices. On the opposite, the organization was bent on protecting national interests of its members. Therefore, being a graduate of civil engineering, Aliabadi left Iran for Vienna (OPEC headquarters) one day before the meeting (June 8). Mohammad Aliabadi, acting minister of petroleum then took part in the following exclusive interview with Persian daily Iran to talk about the details of the 159^th meeting of the OPEC.

What were the most important topics discussed in the meeting?

On the whole, the negotiations aimed to bolster common position of member countries and maintain the organization’s output ceiling in order to stabilize the market and prevent global oil fluctuations.

What were their positions during the negotiations?

When they heard Iran’s arguments in favor of maintaining output level and compared them to their own national interests, they were rapidly convinced. On the whole, after negotiations with a high number of OPEC members, we came to realize that viewpoints of most of them conformed to that of Iran and this was why all member countries, save for three countries which had already voiced their stances, took a single position and opposed any output hike.

What is your opinion about general atmosphere governing the 159^th         meeting?

Before the meeting started on June 8, member countries pursued various approaches. One approach was influenced by a call from big industrial countries which requested increase in production. Only three countries supported that approach which was a result of the United States’ disagreement with the existing prices. The group supporting output hike maintained that international market demanded 1.5 million barrels per day more oil until the end of the Christian year and urged that OPEC should pass the output rise in its 159^th meerting. On the opposite, there was another approach which maintained that oil market is balanced and no shortage has been observed. This group provided logical arguments in favor of maintaining the existing output level. They also announced that OPEC was ready to meet in an extraordinary session and pump more oil into global markets if it felt that higher demand actually existed. They firmly believed that national interests of the members should be given priority over the market. They maintained that the interests of producing and consuming countries should be taken into account at the same time.

As chairman of OPEC, what reasons are there to maintain production ceiling of the organization?

The current levels of supply and demand in the global oil market will prove that there is no shortage in the market. Even strategic reserves of major consuming countries is above the average figure for the past five years. On the other hand, there is 64 million barrels of floating oil with no customer.

Another reason for maintaining current production level is higher production of crude oil by Iraq (which is out of OPEC rationing system) which will happen in the coming months while Libyan oil output may rise again. Therefore, there are many logical reasons to maintain the current level of production. Apart from those reasons, I, as chairman of OPEC, announced that we are meticulously controlling consumption and prices and if we reached the conclusion that the market needs more oil, we would invite OPEC members to an extraordinary session to raise output. Under present circumstances, however, increasing oil production will be totally detrimental to producing countries.

The United States had apparently conducted a lot of consultation before the 159^th meeting to raise the output!

That is correct. About three weeks before the meeting, the US President summoned a group of oil market managers and policymakers and clearly asked them to reduce prices. In addition, the United States contacted some OPEC members to guarantee its goal.

Western media also quoted Obama as saying in an address that the American people should spend less on fuel. However, they want to do that by making producing countries suffer and this is by no means fair. On the other hand, unfavorable economic conditions of the United States in recent years have put a lot of pressure on the US administration which aims to boost trade by reducing costs. Meanwhile, a major reason for runaway increase in oil prices in recent years has been circulation of weak dollars. Therefore, the United States is a cause of the situation which it seeks to change.

Do you think that the international market is ready to take in more oil?

Before answering that question, let me quote from statistics. According to official figures produced by secretariat of OPEC in January and February, unilateral output rise by OPEC and Kuwait to make up for disruption in Libyan oil production had increased the organization’s output to about 30 million barrels per day. After only two months, that is, March and April, they had to reduce that figure by one million barrels per day and go back to the former production. The reason why they had to cut back output was absence of adequate demand in the market. When flow of the Libyan oil was cut due to political problems, some member states decided to fill in the void. However, the Libyan oil is light oil while that of Saudi Arabia, Kuwait and the United Arab Emirates, which advocated output rise, is sour and heavy oil and the market does not need more sour oil. The reason is quite clear. Refineries that treat light and sweet oil need heavy investment and time to adapt their processes to heavy oil feed and this is not economical for refinery managers. In addition, as the situation in Libya calms down, the country may resume production in the near future. As a result, more oil will not be consumed by the market. Consuming countries cannot buy and store it because reserves are totally full.

At what level should global oil prices stand now?

I think that oil price should increase in parallel to other goods and services. When price of all goods and services have risen several times in the past decade, oil, as a strategic commodity, should also see a rise in price. Another important point is stabilization of oil price and prevention of illogical fluctuations. When prices are constant, both consuming and producing countries will be able to make accurate and long-term plans. The next point is necessity of protecting supply security. Since most operating oil fields are past their half-life, further production needs more investment. Therefore, if oil prices do not allow for that investment, security of supply will be in danger.

Since the Supreme Leader visited South Pars region at the beginning of the current Iranian calendar year (started March 21, 2011) and called this year a year for economic jihad, special attention should be paid to shared fields, especially South Pars gas field. Therefore, making the most of such oil and gas fields should top priority list of the Ministry of Petroleum in order to prevent waste of this natural wealth.