2005 - OPEC

called for, following the Gulf of Mexico hurricanes and the US supply disruption. The spare
capacity was not required.
OPEC’s actions, both in 2005 and in previous years, underlines its continued commitment to
ensuring market stability at all times, with secure supply and reasonable prices that are equally
rewarding to producers, investors and consumers, and consistent with robust economic growth,
for both developing and developed economies. During 2005, OPEC met on five occasions at
Ministerial level, three of which were ‘extraordinary’ meetings called for by the Conference
President in order to monitor and adapt to the current oil market situation. At these meetings
it was agreed to increase production by a total of 1 mb/d to ensure adequate supplies of
oil were available at all times. In fact, since 2002 OPEC production has increased by around
4.5 mb/d in order to meet demand. However, OPEC was only able to achieve so much with
its actions since factors over which the Organization had little or no influence were primar-
ily responsible for the ‘extraordinary’, ‘complex’ and ‘unpredictable’ nature of the market in
2005. This becomes acutely apparent when reviewing some of the factors driving the price
increases.
OPEC research indicates that since 2004 the traditional approach to assessing the tightness
of the oil market, based on oil inventories as an explanation for oil price movements, has not
been applicable. Research points to downstream tightness due to inadequate past investment
and increasingly stringent product specifications – downstream investment is primarily the remit
and responsibility of international oil companies and consuming countries – as well as the
perception of upstream constraints. Alongside this was increased activity in the futures markets
concerning possible disruptions, the vast majority of which never came to pass. Unforeseen
natural disasters and geopolitical concerns obviously played a role too.
What all this points to is the importance of shared responsibility within the global community
and the importance of enhanced dialogue and cooperation. This is something that OPEC
placed great credence on in 2005. Thus, last year should also be remembered for words such
as: ‘dialogue’, ‘cooperation’ and ‘support’. This was particularly evident in the 2005 energy
dialogues that widened and deepened discussions between OPEC and, respectively, the Euro-
pean Union (EU), China and Russia.