The Organization of Petroleum Exporting Countries would be showing signs of desperation if it invited former Soviet Union (FSU) countries to become members.
FSU producers apparently have made approaches to OPEC. And it appears relations between OPEC and the FSU are likely to become a little closer, judging by a presentation at a Vienna conference.
Shokri Ghanem, director of research at OPEC, said from a pragmatic viewpoint, it would be advisable to establish regular consultation between OPEC and FSU oil producers because of shared concerns.
"The oil market and particularly the level of the oil price are the final arbiters of the success of any country's policy in terms of revenues and profitability of investment," Ghanem said.
"So the need for cooperation is there, given the ups and downs of demand in the short term and the way buildup of oversupply leads to market volatility and low prices."
FSU'S CONCERN
FSU's overriding concern is substantial loss of production, Ghanem said. He estimated FSU crude oil production fell from 12.4 million b/d in 1993 to barely 7 million b/d in 1994.
FSU oil consumption is estimated to have fallen by 3.7 million b/d between 1990 and 1994. Ghanem expects a further decline of about 500,000 b/d in consumption in 1995 and 1996.
Beyond 1996 however, Ghanem foresees one of two scenarios:
- A turning point in the FSU economy that triggers a rise in private consumption and transportation demand.
- Continued stagnation.
"Assuming the first alternative," Ghanem said, "economic growth and industrialization will claim an ever increasing share of total oil output."
With growing internal demand, less oil would be available for export, Ghanem reasoned, so FSU interest in international oil markets would decline, reflecting its lower profile in the market.
FREE CAPACITY
In the second scenario, Ghanem said, continuing poor internal demand would leave capacity free to allow exports to be maintained. Lack of overall industrial growth would increase emphasis on raw materials and fuel exports.
"FSU's interest in oil price as well as in markets for exports might also grow, since the state of the oil market would have serious consequences for FSU's internal revenues and foreign exchange.
"FSU may endeavor to safeguard its interests in conjunction with other producers, thereby motivating them to cooperate more closely with OPEC, especially to maintain orderly market conditions and thus protect their income."
OPEC will invite FSU producers closer-but not too close-in the next few years, OPEC observers predict. Key to deeper FSU involvement in OPEC is likely to be oil market stability.
Ghanem said, "Given our common interests, but also the possibility of conflict as competitors, we would need to agree on a tradeoff between the price level and volume of our individual exports in times of market volatility."
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