The International Energy Agency's Governing Board, in an exceptional statement issued on May 19, has warned OPEC and called on the organization to intervene to protect the world economy. The statement was released following a regular meeting by the Board. The latter criticized OPEC's production policy, and called on it to “urge action from producers that will help avoid the negative global economic consequences which a further sharp market tightening could cause”. The main allegation here is that OPEC member states are attempting to create an artificial and deliberate shortage in global oil supplies, in order to push prices up, which in turn harm the world economy. But is there any truth to this claim? The IEA, the advisory arm of the OECD – i.e. the representative of major industrialized and oil-consuming nations-, is supposed to be aware more than anyone else of the production levels of OPEC members, owing to its contacts with consuming nations and the information it regularly receives from international oil companies. In this regard, it is advisable to examine the latest report on oil markets, issued by the IEA on May 12, i.e. a few days before the Governing Board's statement, to compare the allegations with the numbers published by the agency. The report mentions that “Global oil supply dipped by 50 kb/d to 87.5 mb/d in April, with combined OPEC crude and NGL supply lower by 260 kb/d, while non-OPEC production rose by 200 kb/d.” The report attributes the decrease of OPEC supplies to the sharp decrease of Libyan oil supplies due to the conflict taking place there. It mentioned that despite expectations which indicated that other OPEC members would increase production to offset shortages in Libyan oil supplies, OPEC output fell by 1.3 mb/d below its pre-crisis level of 30.04 mb/day in January. The report also indicates that the level of commercial inventories of crude oil in OECD countries (i.e. the Western industrialized countries) “declined by 9.2 mb, to 2643 mb or 58.8 days cover in March. Preliminary data indicate a 29.9 mb increase in commercial OECD inventories [in March]”. The report also states that OPEC's output in January was 30.04 mb/day, 30.08 mb/day in February, 28.99 mb/day in March, and 28.75 mb/day in April, compared to OPEC's production ceiling of 24.85 mb/day, and OPEC's maximum production capacity of 30.68 mb/day. This is the latest information issued by the IEA regarding global oil supplies. It indicates that supplies are adequate, especially as it cites the increase of commercial oil inventories in March – the last month with definitive information of this kind. So how can there be a shortage in the markets when international oil companies are stocking more crude oil? The information further indicates that OPEC's output in the first three months of 2011 is 4-5 mbd/day higher than the agreed oil output ceiling. This means that when OPEC members felt that demand increased or when Libyan oil production was suspended, OPEC members did not stand idly by and instead took the initiative. They increased their output far beyond the production quotas agreed upon, in order to avoid any supply shortages. It is clear that the statement issued by the IEA is a warning directed at OPEC's Ministerial Council which will convene on June 8 in Vienna, and a call for an official increase of the production ceiling to be approved. However, it is doubtful that OPEC will take such a measure in the present situation, given that any change in the production ceiling would mean entering a vicious cycle of production quotas and practices normally followed in this regard. This is usually a cause for major disputes among OPEC members. And this is not to mention other issues which the forthcoming ministerial meeting will be confronted with, such as the fact that Mahmoud Ahmadinejad will preside over Iran's delegation to the meeting, and also over the ministerial council as Iran holds the current presidency of the organization – and the ensuing media frenzy. And finally, there is the issue of Libya's representation in the conference. In this regard, the IEA is then overlooking in its report some fundamental causes behind increasing prices. Here, we are referring to speculation. In truth, a committee of inquiry in the U.S. Congress is currently making accusations against investment banks and oil companies of engaging in large-scale speculation, in order to increase their profits. Some companies and groups who engaged in such activities have actually been named, actions that include speculation on gasoline prices, which have recently soared in the United States. Congressional inquiries indicate that the objective of marketing departments in some oil companies is not to ensure that there are adequate supplies of crude oil for their refineries, or ensure that there are adequate supplies of gasoline for their petrol stations, but is instead to speculate in order to increase profits. As a result of these investigations, new rules and regulations on speculation are expected to be enacted. It is worth recalling here that the IEA was established in February 1974 with the main objective of countering OPEC. It is thus unfortunate that we continue to see the remnants of this policy today, despite the improving relations between the two organizations, and the regular bilateral and multilateral meetings that bring them together. The menace in the statement lies in the fact that it overlooked many fundamental issues, in order to hide the real reasons behind increasing petroleum products prices, and to avoid the need to address the otherwise real problems. In short, the IEA knows exactly that OPEC's policy is to reject artificial shortage of oil supplies in order to increase prices. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
