'La spéculation s’assimile à l’écume sur les vagues.
Autrement dit, ce n’est pas l’écume qui fait la vague
mais la vague qui fait l’écume.'
interview by Olivier Appert , easybourse.com
President of the French Petroleum Institute
"Who will bear the burden of the price of a barrel of oil?"
What is your view on the economic climate in which we record now?
We are in a particularly bleak and volatile. The IMF anticipates, for 2008, 1.5% lower rate of global growth compared to the years 2004-2007. This downward revision was made in two stages from October 2007 and again in November 2008 (1.1 points less).
The financial crisis has clearly affected the OECD countries. Of uncertainties about the impact of the crisis on emerging countries. The IMF forecasts growth of these countries by 5% against 8% previously.
This context is it in parallel by a downward trend forecasts of oil demand?
If the elasticity between demand and the price is low, only 0.07%, the elasticity of demand relative to GDP remains close to 1%. In early 2008, there was a consensus forecasts of increasing demand, driven primarily by emerging countries, 2 million barrels per day in 2008. This increase in demand was higher than the outlook for the offer. This explained the very strong pressure on prices during the first half. Today, forecasts predict a growth in demand of 0.1 million barrels per day. For 2009, the IEA estimated that demand could grow by 0.8 million barrels per day.
These are the revisions to lower demand growth that justify much of the reduction in the price of a barrel?
Yes. By nature the oil market is unstable. Just as excess demand in millions of barrels per day leads to erratic movements on the rise-this was the case during the first half of the year a deficit of the application of hundreds of barrels per day translated by the same movements on the decline.
What role do you assign to speculation in the formation of the price of a barrel?
Speculation is comparable to the foam on the waves. In other words, this is not the scum that is the wave but the wave that is dross. The market reacts to basics that were, in the first half of 2008, a shortage of supply meet the demand and are currently in reverse excess supply facing a sharp slowdown in demand. I think the market does qu'amplifier the upward or downward, which is dictated by the macro and micro economics.
The fall in oil prices led by falling naturally streams of all petroleum products. But surprisingly, since one year, the price of oil on international markets is higher than the price of gasoline. How do you explain?
This trend is likely to continue because we face a structural deficit in global distillation diesel.
Is there an equilibrium price that is satisfactory to both producers and consumers? In 2000, OPEC countries had established a system of price range between 22 and 28 dollars per barrel. The decision of principle that had been solemnly recognized was that if the price were to fall below 22 dollars, it would reduce production and increase in beyond 28 dollars, they increase their production. We have updated this range in relation to inflation OPEC and the euro dollar. Thus the range of 22-28 dollars currently equivalent to a range of 54-68 dollars. We're not very far from the figures put forward by the ministers of some OPEC countries or ministers of some countries who meet both producers and consumers.
What you feel is the floor price of oil?
The lower limit price of a barrel is marked by the marginal cost of production that would match supply to demand. In 2009, demand predictability should be covered by the bid, including outside U.S. biofuels whose production cost is higher than the current market price These are heavy oils (which correspond to the extra-heavy oil and tar sands of Canada) which constitute the reference in terms of marginal cost. This explains a number of projects were either postponed or canceled. Moreover, the barrel price depends on many factors: economic growth, the euro / dollar, changes in demand, weather, OPEC policy, expectations of financial markets ...
How do you understand the behavior of OPEC in the coming weeks?
Since 2005, OPEC has lost control of the market by lack of margin production. The cartel could not control the soaring prices. On 15 June 2008, there is less than 6 months, Saudi Arabia had been pressed by all the leaders of the world to increase its production and decided unilaterally production by 5 million barrels per day extra. Currently OPEC wants a production cut to mitigate the decline in the price. On 24 October, it decided to reduce quotas by 1.5 million barrels per day. A meeting be held in Oran in mid-December under the chairmanship of Algerian Oil Minister, Mr Chakib Khelil. The uncertainties surrounding the deteriorating economic conditions are feared to OPEC a risk of downward spiral. It is against this risk that OPEC should take precautions. It will be interesting to see how members of the cartel will find an agreement in the coming days. Financially, the various OPEC countries are not in the same situation. Their respective deaths, ie the price of crude which allows you to balance their budgets, are different. Finally the question of who will bear the burden of falling prices.
Beyond the economic aspect, what is your feeling about the geopolitical dimension of the situation?
It is not possible to consider the evolution of the oil market without taking into consideration the geopolitical dimension when two thirds of oil reserves are in OPEC countries, with 60% only in the Middle East. A number of question marks are linked to U.S. policy which is practiced by the new administration vis-à-vis Iran, Iraq, Israel ...
Another uncertainty is the outcome of discussions within OPEC, including the determination of the countries that bear the burden of the price of a barrel. At the meeting on 24 October, the decision to reduce quotas had been taken relatively quickly because Iran and Venezuela had agreed to participate in this decrease. It is not certain that things recur in the future.
In addition, the geopolitical dimension must integrate relations between OPEC and Russia insofar as Saudi Arabia, which has learned against the oil shock of 1986, does not want to take only the new shock to the decline that we know when the production level of Russia is currently equivalent to that of Saudi Arabia. It is likely that we will in the coming weeks of acrimonious discussions between the two countries on this issue.
Do you think this geopolitical dimension can greatly influence the evolution of the price of a barrel in 2009?
The oil market fundamentals do not change with the deep uncertainties due to the economic crisis as demand from emerging countries is to continue to grow, if only because of massive public investments are made in infrastructure and because of the incessant increase in purchasing power of the domestic population. It is necessary, on the supply side, to make investments if only to maintain the level of production (which accounts for three quarters of the investments are being made). For the moment we do not point drop in investment from the statistics we have. More prices will fall, will be the longest period of slowdown or interruption of investment projects, and faster will be resumed at the rising price of a barrel due to a shortage in supply.
Do you think Russia has the means to control its production?
I think so. Public authorities control the transport. Transneft is a public company. Or to evacuate production, it is necessary to carry these products. If you look at the Russian statistics since 1998, growth in Russian production was around 0.5 million barrels per day. We are entering a phase of stabilization of this production, even in a declining due to a lack of investment.
What is the state of play of parapétrolières industry?
We are in this industry, both in exploration and in refining, facing a slowdown related to stabilization or stop some projects for reasons of profitability, the problems of financing investments due to the phenomenon of credit crunch and pressure oil companies on the price of services.
What is the importance of Russian and Chinese players in the field parapétrolier?
The Russian players are confined to their local market. This is not the case with Chinese operators who increasingly outside their domestic market. GP as an actor, who was totally unknown a decade ago, has become the reference in the field of seismic land segment that is less technological seismic sea. This trend is also found in the refining sector, where there is a growing number of Chinese players abroad, with the support of leaders such as Sinopec and Petrochina.
What is your view on reports of Aramco joint venture with Chevron with Aramco and Total. How do you explain?
It is not a problem of funding a problem of visibility on the evolution of prices of raw materials as a whole.