IEA Welcomes OPEC Production Increase; Emphasises Importance of June Market Review

The International Energy Agency today described the decision by major oil producers to lift their production ceiling by 1.45 million barrels per day as a “step in the right direction”. At the same time, the Agency welcomed a commitment by members of the Organisation of Petroleum Exporting Countries to review the market situation in June.

“OPEC’s action today is very welcome,” said Robert Priddle, Executive Director of the Paris-based IEA. “It is a statement by the producers of their commitment to keep the market adequately supplied. The production increase due to start April 1 will not fully meet the increased demand we foresee later in the year, and it will not bring stocks up even to last year’s low levels. It is however, definitely a step in the right direction.”

Speaking shortly after ministers from producing countries concluded their meeting in Vienna, Priddle acknowledged that the organisation’s action amounted to less than many oil-importing countries had hoped for. But, he added: “We attach particular importance to OPEC’s announced readiness to review the situation in June.”

Priddle said that the caution reflected in today’s decision by producers came as no surprise. Oil prices, which recently reached $34 per barrel, he noted, had slid by $7 over the past two weeks. “We can understand the producers’ concern that a large and sudden increase in production might trigger a price collapse.” In 1998-1999, increased production sent oil prices plunging to $10 a barrel, their lowest level since the 1970’s inflation-adjusted terms. “Trying to manage a market by a process of collective government decision-making,” Priddle said, “is a highly uncertain undertaking.”

The IEA was founded in 1974, after the first “oil shock”. An autonomous agency within the framework of the Organisation for Economic Co-operation and Development, the IEA is charged with helping to ensure stable and affordable energy supplies to its 25 Member countries.