Until recently, few people outside his native country had ever heard of the Indonesian Energy Minister, Purnomo Yusgiantoro. But now, as the world oil price sets records on an almost daily basis, the man who took over as president of the oil producers’ cartel, the Organisation of Petroleum Exporting Countries (Opec), on January 1 this year is rapidly becoming a household name, although his is trickier to pronounce than that of the legendary Sheikh Kaki Yamani, the Saudi oil minister who dominated Opec in the 1970s.
Oil prices have leapt 28% so far this year, with most of the gain coming in the past few weeks, taking everybody, including Opec, by surprise. It was only seven weeks ago, for example, that the group sanctioned a production cut to prevent prices from falling.
Speaking ahead of a crucial meeting of Opec ministers in Amsterdam last weekend, Yusgiantoro appeared far less a firebrand flag-waver for the world’s big oil exporters and far more like the thoughtful tactician that his chess-playing background would suggest. Nor did he seem fazed by suddenly being thrust into the world spotlight now that Opec, after more than 10 years in the wilderness — where it seemed ineffectual and oil prices languished at $10 a barrel or lower — is back punching its weight again, even if not by its own design.
Yusgiantoro believes his role is to assure everyone that, rather than shutting down the wells and driving the price of crude ever higher to hold the world to ransom — as the cartel famously did during the great oil shock of 1973 to 1974 when prices quadrupled — Opec is here to help.
“We want to assure the market that we have enough oil, and action has to be taken soon to stabilise oil prices,” he said quietly. “And if we don’t take action until the United States driving season starts in June, prices will really skyrocket and we certainly don’t want that.” He was, however, careful to avoid saying how high he thinks prices could go or for how long they could stay up there. But by “we”, he did not mean just Opec. He meant everyone who is a player in oil markets — producers, consumers and speculators.
The US may only have about 4% of the world’s population, but it consumes more than a quarter of its energy. When Americans jump into their gas guzzlers and drive away for the Memorial Day holiday weekend at the beginning of June, the rest of the world feels the impact through higher petrol prices. And, so far at least, the rise in the average price at the pumps in the US to more than $2 a gallon has done nothing to quench Americans’ demand for it. In fact, demand growth this season is estimated to be the strongest in 16 years.
Small wonder, then, that prices are on the increase. But Opec, which pumps about a third of the world’s oil, is keen not to take the blame for the price rises. Opec ministers attending the oil forum in Amsterdam last weekend held an informal meeting to discuss a Saudi Arabian proposal to raise output quotas among the cartel’s 11 members by 1,5-million barrels a day to 25-million barrels.
Yusgiantoro, however, thought it unlikely they would clinch a formal deal ahead of the next scheduled full Opec meeting, in Beirut on June 3.
Many oil experts say there is little point in raising the quotas because Opec is already pumping two million barrels a day above its quota to meet the extra demand from the US and China.
But that is to misunderstand the situation, said Yusgiantoro. Under Opec rules, members can produce more oil if the price of an Opec basket of crude stays above its target range of $22 to $28. With prices currently at about $41 a barrel for US light crude and only a few dollars less for Opec crude, members would be free to produce some way above the new ceiling of 25-million barrels a day.
Analysts say, however, that it may only be Saudi Arabia, which pumps 8,5-million barrels and is by far the world’s biggest exporter, that has any significant extra capacity. And much Opec oil contains less gasoline than US crude — making it less useful at the moment. Which brings us back to Yusgiantoro’s central point: if Opec is pumping the same amount now as it was two months ago, with the market knowing the US driving season is approaching, how can it be the cartel’s fault that prices are so high?
“This is because of factors beyond Opec’s scope. There are many non-fundamental factors driving the oil market — including geopolitics, speculators and the US gasoline market,” he said.
Many international investment funds, tiring of directionless equity markets and noticing increased violence in Iraq and Saudi Arabia, have sensed a profit to be made from oil and have piled into the futures market, driving prices up rapidly. But Yusgiantoro is reluctant to condemn the speculators. As a graduate in economics and oil production, he understands how markets work.
“They are seeking an economic rent from what they do.” He shrugged, knowing that this is what Opec formed itself to do with oil all those years ago.
Nor does he think Americans should be made to buy smaller, thriftier cars to stem demand. But he stressed there are problems both with refinery capacity in the US and with the multitude of gasoline specifications demanded by different states within the country, which create problems for refiners and shortages for motorists.
He received backing for that point last week as the US Energy Department admitted it would have to import record amounts of oil this season.
Yusgiantoro also supports President George W Bush’s rejection of calls to tap into the country’s strategic oil reserves — which currently contain about 660-million barrels — to try to take the heat out of the oil market. “President Bush was quite right because the issue is in the gasoline market, not the oil market,” he said. But why should Opec care about rising prices? Surely big rises in oil prices mean a bonanza for Opec, which consists of Saudi Arabia, Iran, Iraq, Kuwait, the United Arab Emirates, Qatar, Algeria, Libya, Nigeria, Venezuela and Indonesia. Not so, said Yusgiantoro. “We don’t like this kind of price level at all. There would be a big impact on us if the consumer nations had a recession.” And that is what the consumer countries fear, having seen deep recessions follow oil-price spikes in recent decades.
Finance ministers from the Group of Eight leading industrial countries (Canada, France, Germany, Italy, Japan, Russia, Britain and the US) met recently in New York — and oil was high on the agenda. Britain’s Chancellor of the Exchequer Gordon Brown has urged Opec to open the taps and pump more oil to keep the world economy rolling. Britain’s own oil production has peaked and is in long-term decline. Brown and Yusgiantoro held talks in which both men made their views abundantly clear.
Yusgiantoro may be keen to be moderate and not cause too much friction with the consuming countries around the world, but he also makes it clear who he represents. The Opec secretariat, based in Vienna, is carrying out a study into whether the $22 to $28 a barrel price range for Opec’s crude, set in 2000, is still relevant. In other words, he thinks it is too low.
“For now, we are sticking with the $22 to $28 range, but we are studying whether there are any factors that might have changed since 2000” — such as the recovery in the world economy and budget problems in several Opec member countries, both of which would justify higher prices.
But here, the chess player only smiled and left one to wonder what his next move might be. — Â