Middle East Economic Survey
VOL. XLVII
No 22
Ait Laoussine Sees Disturbing Parallels Between OPEC’s 1997 Jakarta And Upcoming Beirut Meetings
The following commentary was written for MEES by Nordine Ait-Laoussine, Nalcosa, Geneva.
If the recent Saudi proposal for a substantial increase in OPEC production receives the backing of the forthcoming extraordinary ministerial conference in Beirut, it will certainly achieve its intended objective to ultimately bring crude oil prices down. The real question is how fast and how far will the intended correction go and whether it will succeed in keeping prices within the OPEC’s desired range.
In this respect, it may be useful to remind ourselves of the similarities between the current state of affairs and the situation which prevailed on the eve of the OPEC November1997 Jakarta decision which precipitated the 1998 price collapse. These similarities include:
1. Comparable robust global demand growth in both cases, averaging 1.8 to 2mn b/d (circa 2.5% annually), resulting from improved economic prospects and higher levels of consumption in Asia (averaging circa 7.5% annually);
2. Similar levels of required OPEC supply to balance the market in the short term, with a call on OPEC crude estimated then at 27.2mn b/d by Saudi Arabia for 1998 versus an average of 27mn b/d estimated now, by both the OPEC Secretariat and the IEA, for the third and fourth quarters of this year;
3. Comparable global level of OECD inventories (3.72bn barrels at end 3Q97 versus 3.89bn barrels at end 1Q04 as reported by the IEA), with industry stocks slightly lower now but more than offset by higher levels of government stocks;
4. Comparable OPEC-10 production ceiling (23.8mn b/d in November 1997 versus 23.5mn b/d currently);
5. Similar levels of total OPEC output (28mn b/d in October 1997 versus 28.3mn b/d estimated for May 2004);
6. Similar levels of OPEC-10 excess production (2.6mn b/d reported for October 1997 versus 2.8mn b/d currently).
7. The OPEC-10 ceiling increase agreed in Jakarta (2.4mn b/d – the highest one-time increase in the history of the organization) is of the same order of magnitude as the increase being suggested for Beirut.
While it is clear that market conditions are not entirely identical, as evidenced by the fact that prices are today roughly twice what they were in November 1997 in view of differing geopolitical and logistic circumstances, the above disturbing parallels should caution us against losing sight of market fundamentals.