OPEC: Oil Market 'Detached' from Supply and Demand

It is "non-fundamental factors [that are] mainly responsible" for volatility in the oil market, according to HE Abdalla Salem El-Badri, the Organization of the Petroleum Exporting Countries (OPEC) Secretary General.

Badri addressed attendees of the 11th International Energy Forum held in Rome April 21, delivering "Reflections on key oil challenges and opportunities," a presentation focusing on energy demand and its link to exploration and production investment.

Badri blamed "heightened levels of speculation," a weak U.S. dollar and geopolitical concerns on recent fluctuations in crude prices.

"Crude oil prices have become detached from the dynamics of supply and demand," said Badri. "OPEC has played a vital role in keeping the market well-supplied during the recent volatile period, with our Member Countries increasing crude output, as needed, and accelerating capacity-expansion plans.

"There are, for example, more than 120 upstream development projects, and cumulative investment in new capacity exceeds US $150 billion."

Addressing the same audience, International Energy Agency (IEA) Executive Director Nobuo Tanaka went a step further to decry recent crude prices as being "too high for everybody, especially for developing countries who face other significant cost increases."

Badri also believes that developing countries will play an intricate role in future energy demand.

"Most of the new demand will come from developing countries, with consumption doubling to 58 mb/d, and Asia will account for more than half this increase," said Badri. "Nevertheless, energy poverty will remain an important challenge. By 2030, developing countries will consume, on average, about five times less oil per person than OECD countries. In sector terms, transportation will be the main source of the world rise."

Tanaka echoed Badri in calling out the weak U.S. dollar as the culprit for an increase in crude prices, though he said that this is only a factor in prices. "Oil prices are higher in all currencies," he said.

Still, the "major problem," as determined by an IEA roundtable of experts, is the "lack of stock data.

"Individually countries may feel their data is sensitive," said Tanaka, "but globally a lack of transparency aggravates [market] volatility."

While the IEA expert roundtable determined there is no "single explanation" for the increase in crude prices, "many of the variables only find fertile ground in a fundamentally underinvested commodity."

Tanaka concluded by saying that the current energy market cannot be sustained in the long run. "In the short-to-medium term, there is an urgent need for investment to restore an adequate cushion between oil supply and demand," he said. "But for the longer-term, to meet environmental concerns, we will require a new global energy revolution to transform the way we produce and use energy."