IEEJ: January 2011

Special Bulletin
November 26, 2010
A Japanese Perspective on the International Energy Landscape (20)

Dialogue between Oil Producing and Consuming Countries,and IEA-OPEC-IEF Cooperation
Ken Koyama, PhD
Director
Strategy and Industry Research Unit
Institute of Energy Economics, JapanOn November 22 to 23, I had an opportunity to participate in an international conferencein London. Topics for discussions at the conference included background factors behind crude oil
price fluctuations, oil price formation problems for spot, futures and over-the-counter markets, andappropriate market designs and regulations. I would like to introduce an outline and key points of theconference in a separate report. Here, I build on the conference to discuss the importance of dialogue
between oil producing and consuming countries. This is because the conference was uniquely
cosponsored by the International Energy Agency, the International Energy Forum and theOrganization of Petroleum Exporting Countries.
It may be needless to say that the IEA is an international organization representing oil(energy) consuming industrial countries while OPEC is a group of major oil producing countries
including Saudi Arabia. In this sense, the two international organizations respectively represent oilconsuming and producing countries. The IEF is an international organization whose permanent
secretariat was established in 2005 after the first international economic forum took place in 1991 topromote dialogue between oil producing and consuming countries. In this way, we can interpret theconference as a gathering of the three international organizations as key players in internationalenergy markets to discuss oil price formation problems for the purpose of stabilizing markets
through dialogue.
The benchmark crude oil futures price rose close to $150/barrels in 2008 before plunging
below $40/barrel on an economic crisis and rising back above $80/barrel. Amid wild oil pricefluctuations over the recent few years, the stabilization of the international oil market has been a key
challenge for the entire world. In this sense, we can say that such important dialogue between oil
producing and consuming countries should have taken place earlier. In fact, there were some leaders
who grew conscious of the importance of such dialogue amid the rapid spikes (or wild fluctuations)of oil prices. In a typical development, Saudi Arabian King Abdullah called a meeting in Jeddah ofleaders from major oil producing and consuming countries in June 2008 when the benchmark crude
oil futures price topped $100/barrel and was about to rise further. But the meeting fell short ofleading to an official dialogue between the IEA and OPEC as the international organizations thatsymbolically represent oil consuming and producing countries.
In fact, the IEA and OPEC had cosponsored some international conferences, including a2006 Oslo meeting and a 2007 Bali gathering. I attended these meetings and felt that it was1

IEEJ: January 2011

significant for the key players in international energy markets to frankly exchange opinions at anofficial forum.
Later, however, moves to arrange official direct talks between the IEA and OPEC
stagnated. This may be because there were basic conflicts of interest between the representatives ofoil consuming and producing countries and because they had different stances and views amid oil
price spikes. Particularly, their wide differences surfaced over price formation problems (reasons foroil price spikes) and how to respond to price spikes. OPEC asserted that major factors behind oil
price spikes were not supply/demand fundamentals but financial factors that grew more influential inrecent years. OPEC has conducted a joint study with the European Union to back up the assertion
since around 2006. The IEA for its part maintained its attitude of emphasizing supply/demand
fundamentals as basic pricing factors and relatively refrained from giving weight to financial factors.
The IEA sponsored international workshops on the matter in New York in 2004, in Paris in 2008 andin Tokyo in 2010 to accumulate discussions among experts. I feel that the IEA has given growing
priority to financial factors through these workshops.
Nevertheless, the IEA and OPEC might have growingly felt that theological arguments
about whether to attribute oil price spikes to supply/demand fundamentals or financial factors would
not lead to any constructive resolution of problems. Even amid such feeling, they might have begun
to give priority to the need for their frank exchange of views despite their different thoughts andopinions about the matter. Such development might have existed behind the London international
conference.
The role of the IEF is also important. As noted above, the IEF’s most important mission isto promote dialogue between oil producing and consuming countries as indicated by the objective of
its establishment. It is very important for the IEF to acknowledge differences between the IEA andOPEC and serve as a mediator to arrange opportunities for their frank exchanges of opinions. One
background factor behind the London conference might have been that the IEF and its secretariat
have attempted to enhance the IEF’s presence and raison d'etre as an international organization by
successfully promoting dialogue in the meeting. The conference emerged directly from an officialagreement at a meeting of IEF energy ministers in Cancun in March 2010. In this sense, thesuccessful arrangement of the London conference was the IEF’s most important immediate mission.
The IEF secretariat may mediate talks between the IEA and OPEC not only on oil price formation
problems but also on other topics. In January next year, the IEA and OPEC are scheduled to meet in
Saudi Arabia’s Riyadh, where the IEF secretariat is located, to exchange opinions on internationalenergy market supply/demand forecasts. As future supply/demand forecasts can contribute tosecuring timely investment to stabilize energy markets over a medium to long term and caninfluence market participants’ short to medium-term anticipation and expectations and the formationof energy prices, the three international organizations’ exchange of views on the matter has beenrecognized as significant. The deep engagement with the arrangement of the IEA-OPEC meeting onenergy supply/demand forecasts may also be an important challenge for the IEF secretariat.
Under such situation, I would like to point out that Asian problems will grow more
important for moves regarding talks between oil producing and consuming countries. The Asianmarket including China and India will increase its influences on energy market supply and demand,
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IEEJ: January 2011and pricing. In this sense, Asia will become critically important as a junction for dialogue between
oil producing and consuming countries. Appropriate messages about Asian opinions and stances andrelevant market analyses will grow indispensable for making dialogue between oil producing andconsuming countries successful and for reflecting Asian opinions appropriately in the dialogue. OurIEEJ will be ready to be firmly engaged in dialogue between oil producing and consuming countries
by best utilising our Asian market analyses. In the future, our institution may be required to further
enhance its functions and play greater roles in important international forums.
Contact: report@tky.ieej.or.jp

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