1. © 2006, Organization of the Petroleum Exporting Countries 1 The Role of OPEC in Oil Market Stability presented by Mohammad Alipour-Jeddi Head, Petroleum Market Analysis Department Organization of Petroleum Exporting Countries Vienna Economic Forum 5 th November 2007 Vienna

2. © 2006, Organization of the Petroleum Exporting Countries 2 Outline Understanding OPEC Review of the oil market –Historical developments –Recent developments Prospects –OPEC capacity expansion Concluding Remarks

3. © 2006, Organization of the Petroleum Exporting Countries 3 Understanding OPEC

4. © 2006, Organization of the Petroleum Exporting Countries 4  Average GDP per capita: $2,200  But there is a very wide range ($550-$45,960)  95% of the 533 million people in OPEC live in a country where GDP per capita is no higher than $5,000  This compares with OECD average GDP per capita of over $28,000  Average life expectancy: 61 years  Oil Dependency of OPEC MCs Share of oil exports in total exports 68% (15%-95%) Share of oil exports in GDP 27% (5%-59%) OPEC profile

5. © 2006, Organization of the Petroleum Exporting Countries 5 “ The principal aim of the Organization shall be the coordination and unification of the petroleum policies of Member Countries and the determination of the best means for safeguarding their interests, individually and collectively” “The Organization shall devise ways and means of ensuring the stabilisation of prices in international oil markets, with a view to eliminating harmful and unnecessary fluctuations” “Due regard shall be given at all times to the interests of the producing nations and to the necessity of securing: a steady income to the producing countries; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on their capital to those investing in the petroleum industry” OPEC Statute (Article 2) OPEC objectives

6. © 2006, Organization of the Petroleum Exporting Countries 6  Engagement in dialogue with producers & consumers The Conference l OPEC – EU l OPEC – IEA l OPEC – China  Active role & participation in international forums l IMF, World Bank, IRU,… OPEC’s role in a globalised and interconnected world

7. © 2006, Organization of the Petroleum Exporting Countries 7 OPEC-EU Energy Dialogue  Initialized in December 2004  Three Ministerial meetings since 2005  Workshop on the Impact of Financial Markets on the Price of Oil and Volatility (2006)  Roundtable on Oil Market Developments (2005); Energy Policies (2007)  Dialogue seeks to enhance co-operation in oil market analysis, energy policies, energy technologies and related multi-lateral issues

8. © 2006, Organization of the Petroleum Exporting Countries 8 OPEC-IEA Dialogue  Dialogue seeks to enhance mutual understanding of views and issues important to consuming and producing countries  Five joint workshops have been held on key oil market issues since 2001  First three focused mainly on oil investment and supply issues  Most recent, Asian Oil Demand: Outlook and Challenges, held in Bali

9. © 2006, Organization of the Petroleum Exporting Countries 9 OPEC-China Dialogue  Initiated by Ministerial Meeting in Beijing in December 2005  First High-level OPEC-China Roundtable held in Vienna in 2006  Second High-level Roundtable held in Beijing in October  The Dialogue seeks to establish a continued exchange of views at all levels on energy issues of common interests, in particular security of supply and demand, within a balanced and pragmatic framework that will ensure a fruitful and long-lasting cooperation

10. © 2006, Organization of the Petroleum Exporting Countries 10 Review of the oil market –Historical developments

11. © 2006, Organization of the Petroleum Exporting Countries 11 Continued increase in world oil demand, but structural shift in oil demand growth

12. © 2006, Organization of the Petroleum Exporting Countries 12 OPEC production: Maintaining market balance (mb/d)

13. © 2006, Organization of the Petroleum Exporting Countries 13 Supply security: Supply exceeding demand

14. © 2006, Organization of the Petroleum Exporting Countries 14 Review of the oil market –Recent developments

15. © 2006, Organization of the Petroleum Exporting Countries 15 Recent developments in crude oil prices ($US/b)

16. © 2006, Organization of the Petroleum Exporting Countries 16 OPEC Reference Basket value considerably lower in euros than in US dollars

17. © 2006, Organization of the Petroleum Exporting Countries 17 Surge in demand due to strong world GDP growth at 30-year high Weak non-OPEC supply Increasing OPEC production Downstream bottlenecks Geopolitical tensions and increased activity in futures markets magnifying price volatility Factors behind upward shift in prices since 2004

18. © 2006, Organization of the Petroleum Exporting Countries 18 Strong World growth led by Asia

19. © 2006, Organization of the Petroleum Exporting Countries 19 Sudden surge in oil demand growth in 2004

20. © 2006, Organization of the Petroleum Exporting Countries 20 Weak non-OPEC supply growth (mb/d)

21. © 2006, Organization of the Petroleum Exporting Countries 21 OPEC in action: Crude production responsive to market needs

22. © 2006, Organization of the Petroleum Exporting Countries 22 Sharp increase in OPEC production led to lower spare capacity

23. © 2006, Organization of the Petroleum Exporting Countries 23 Tightness in downstream: Industry faced with shortage of effective spare refinery capacity

24. © 2006, Organization of the Petroleum Exporting Countries 24 Investment by major oil companies ( ( Billion US$)

25. © 2006, Organization of the Petroleum Exporting Countries 25 Increasing activities in futures market 1,000 Contracts

26. © 2006, Organization of the Petroleum Exporting Countries 26 The volume of paper trade for commercials & non-commercials have increased in the NYMEX

27. © 2006, Organization of the Petroleum Exporting Countries 27 Prospects –OPEC capacity expansion

28. © 2006, Organization of the Petroleum Exporting Countries 28 OPEC/non-OPEC share in oil reserves and production (%)

29. © 2006, Organization of the Petroleum Exporting Countries 29 OPEC production capacity plans by country mb/d

30. © 2006, Organization of the Petroleum Exporting Countries 30 OPEC production capacity plans including NGLs

31. © 2006, Organization of the Petroleum Exporting Countries 31 OPEC refining expansion plans tb/d

32. © 2006, Organization of the Petroleum Exporting Countries 32  OPEC reserve base is sufficient to meet projected world oil demand (oil: 77%, natural gas: 49% of total world reserves)  OPEC Members are undertaking investments to expand supply capacity (more than 5 mb/d by 2012) to meet the expected increase in world oil demand and provide an adequate cushion of supply  Additional efforts are also being made to address tightness in downstream  Recent Ministerial decision to increase OPEC production by 0.5 mb/d is a clear demonstration of the Organization’s concern about the continued health of the world economy as well as its ongoing commitment to ensure adequate supplies, especially ahead of the high-demand winter season Concluding remarks

33. © 2006, Organization of the Petroleum Exporting Countries 33  Security of demand is vital to ensuring that the appropriate level of investments are made in OPEC Member Countries to minimise the risks associated with under- and over-investment  Consumers governments should consider minimising policy- induced uncertainties on oil demand  OPEC attaches great importance to the need for deepening and widening the dialogue between producers and consumers for the benefit of both  The Third Summit of Heads of State and Government of OPEC Member Countries, to be held in Saudi Arabia in November 15-16, will provide long-term guidance to enhance OPEC’s stabilising role in the market and ensure adequate supplies to meet energy needs for sustainable development Concluding remarks

34. © 2006, Organization of the Petroleum Exporting Countries 34 www.opec.org Thank you