IEA Director Calls on OPEC to Heed Market Signals; Says Brent Crude at $31 Belies “Adequate Supply”

Robert Priddle, Executive Director of the International Energy Agency, has called on oil producers to “listen closely to what the markets are saying” when they decide later this month on their production levels for the rest of the year. Priddle made it clear that the consuming nations he represents hope for a significant increase. Referring to the steeply rising cost of crude, he said: “$31 Brent is not a signal of an adequately supplied market.”

Priddle made his remarks in a speech delivered Monday at a lunch hosted by the Organisation of Petroleum Exporting Countries. He was preceded at the dais by Rilwanu Lukman, Secretary-General of OPEC. The lunch was a side-event at the Sixteenth World Petroleum Congress.

It came just a week ahead of a crucial OPEC meeting in Vienna, where the producing countries will decide whether or not to raise the oil-production ceilings they set last March. Since those ceilings have been in effect, the price of a barrel of oil has risen by more than half. Last week, benchmark Brent crude hit $31, as did West Texas Intermediate. According to unofficial reports after the OPEC meeting last March, the producers agreed to lift production automatically if the price exceeded $28. But, as Priddle said in his speech, “Nothing happened”.

The very fact that he and Lukman shared the same platform would have been “hard to imagine” 25 years ago, Priddle remarked. Relations between OPEC and the IEA have moved away from “confrontation,” and a number of areas of agreement have appeared, including the idea that of “the world’s need for OPEC oil – and for increasing quantities of it in the years ahead”. 

On the other hand, Priddle pointed out OPEC and the IEA are divided over the usefulness of cartels in managing commodity markets. They are also at odds over what a “reasonable” price for crude oil and products might be. The industrial democracies are concerned about the extra hardship that less-developed economies face when oil prices soar upward. The IEA sees no virtue in the notion of joint management of oil markets by producers and consumers. It opposes the notion that the high domestic taxes on oil products in some European countries take money out of the producers’ pockets.

One disagreement underlies all the others. As Priddle put it: “The best market management is no management.” A market responsive to market signals, he concluded would best serve the interests of both producers and consumers.