VIENNA: Autumn 1960 in Baghdad, five heads of state sign on the dotted line to alter the course of energy for decades to come. Today, the 12 members of OPEC sit atop just over three quarters of the world’s proven reserves — more than 1 trillion barrels of crude. While there has not been any independent verification of that number, OPEC’s secretary general says it is something global markets can plan for.
“A trillion plus, the reserve is very, very accurate. We know the numbers; we put this number in our data. We distribute the numbers and we are sure that our proven reserves are more than a trillion,” Abdalla Salem El Badri told CNN when marking the 50th Anniversary of OPEC.
With oil recently hitting a five month high of $83 a barrel last week, the ministerial meeting in Vienna was less about setting a target price and more about compliance and future planning. The former has always been a challenge, since the 12 members try to jockey for market share and fill their domestic coffers when prices are historically high.
According to OPEC and Bloomberg estimates, compliance by member states is running about 57 percent, well below the 80 percent level the spring of 2009. As the economy recovers, there has been more demand for oil so OPEC members produce above their assigned allocations.
OPEC updated its daily global demand saying it will average 85.59 million barrels a day this year for a gain of just 1.3 percent on the year before. 2011 is not a great deal more promising with OPEC saying demand will rise only 1.2 percent next year. These numbers are nearly in line with those from the International Energy Agency, the think tank of the OECD countries.
So in this tepid recovery scenario, ministers are not eager to rock the boat. If they can keep oil prices in the range of $70-85 a barrel, where they have been for the better part of a year, their domestic development priorities can be met without stifling global growth. According to the Center for Global Energy Studies in London, in the current pricing scenario, the 12 member states will bring in $625 billion dollars this year, again historically high for the cartel.
The challenge is not so much now, but in the medium term. Ministers here are talking about spare capacity — basically the ability to produce more oil when demand justifies such action. That demand is not expected in the next 18 months, but certainly in the next two or three years, due to the growth of China and less so India.
Most of the spare capacity today sits in Saudi Arabia, which led a drive to take 4.2 million barrels off the market in the autumn of 2008 when prices went from $147 dollars down to $33. It is not clear as I observed the shuttle diplomacy at OPEC’s new headquarters and within the lobbies of the Hilton and Intercontinental Hotels that members are re-investing at a pace to respond to the potential challenge in the near term.
Medium term, there is also a serious issue of in-fighting between long term rivals Iran and Iraq. On October 4, Iraq upgraded its reported proven reserves to 143 billion barrels — a sudden rise of 24 percent. Long neglected under the rule of Saddam Hussein and sanctions which targeted the energy sector, oil exploration suffered immensely for the past two decades. Iraq has aspirations to challenge Saudi Arabia over the next decade and produce 12 million barrels a day.
One week after Iraq’s declaration, Iran upped the stakes and said that proven reserves in its country suddenly surged 9 percent to just over 150 billion barrels and not by accident higher than Iraq. As one veteran oil executive said here during a conversation, this verbal jostling is “silly and lacks credibility.”
The face of OPEC for more than a quarter century, Sheikh Ahmed Zaki Yamani, Saudi Arabia’s oil minister from 1962-1986, suggested an independent third party analysis of OPEC’s reserves.
“We have to make a study by some people outside the countries you’ve mentioned. I don’t know whether they exaggerated or they did not. I want, I need a neutral one,” Sheikh Yamani said in a CNN interview at his home outside of Geneva.
During Sheikh Yamani’s time and through the mid-1990’s, the in-fighting within OPEC was legendary. Member states would convene at top hotels in all corners of the world, with displays of wealth and meetings could last a week or longer.
That era has passed and at 50 the institution is much more business-like with meetings lasting no more than a day. After its hard fought gains over the past decade to provide some predictability, many here hope that some within the organization don’t have a mid-life crisis and go back to their old and let’s more confrontational ways.
John Defterios is CNN’s anchor for Marketplace Middle East. Tune in Fridays at 11:15 and Saturdays at 9:15. For more information go to www.cnn.com/mme.