Oil market stability is both the concern and responsibility of consumer and producer countries, writes Sherine Nasr Stable prices and global energy security are of primary importance to those in the oil industry. Never before has so much mutual dialogue occurred between oil producing and oil consuming countries for the purpose of ensuring stability to the oil market. Hardly surprising, as volatile prices have been a dominant feature of the oil market since early 2004. Unprecedented spikes have been followed by swift recessions which have certainly produced mixed results with both producers and consumers. Last June, for example, the third meeting of the Brussels- based EU-OPEC (Organisation of Petroleum Exporting Countries) Energy Dialogue welcomed constructive dialogue between producer and consumer countries, underlining the fact that oil price volatility leads to uncertainty over future demand and diminishes investor confidence. On 30 November, Egypt hosted the 1st Global Energy Round Table. Attended by petroleum ministers and high- ranking officials from 15 countries, the forum focused on stability and mutual dialogue as the cornerstone of a healthier market. Attending the forum were the United Arab Emirates, Kuwait, Libya, the EU energy commission and the secretary-general of three major international energy organisations, namely OPEC, OAPEC (Organisation of Arab Petroleum Exporting Countries) and IEF (International Energy Forum). "Each country plays a mixed role. In Egypt, for example, we are producers as well as consumers of oil and other petroleum products," said Minister of Petroleum Sameh Fahmi, adding that stability is in the best interest of all countries. The same vision was also embraced by Mohamed Barkindo, acting for the OPEC secretary-general, who underlined that, "The goal for all of us is market stability. If we can attain it and sustain it, then it would clearly be a "win-win' situation for all stakeholders." The past couple of years have shown how oil price volatility can negatively impact all involved in the market. After witnessing a protracted uplifting of prices throughout 2004, the past few months have witnessed a significant reversal of this. It is certainly the case that the scale and speed of the decline in crude oil prices has caught the market by surprise. The OPEC Reference Basket has fallen by more than $19 a barrel from a peak of $72.7pb (per barrel) on 8 August, the sharpest drop since 1991. "Past experience has shown that it is in the long-term interest of both producers and consumers to maintain prices at levels that both support healthy economic growth and encourage investment in capacity to meet current and future demand," said Barkindo. A high level OPEC and non-OPEC experts' meeting will be held in Cairo in the next year to discuss these concerns in detail. Meanwhile, after a two-year period in which OPEC focused its efforts on increasing production levels and accelerating capacity expansion plans in order to counter the steep increase in prices at that time, it is now acting rapidly to resist a possible heavy downward price spiral which would be, "As potentially damaging to the market at large as the upward trend", in the words of Barkindo. One major variable in the oil market is the increasing supplies from non-OPEC countries which peaked at 0.9mb/d in 2006 and is expected to further grow next year to 1.8mb/d, the highest level since 1984. According to Barkindo, this signifies a clear imbalance between supply and demand. "Growth in non-OPEC supply is expected to exceed growth in world demand by around 0.7mb/d in 2007, indicating the need for measures to rebalance a market already awash with stocks," said Barkindo, adding that, as a result, the demand for OPEC oil will be 28.1mb/d, around 1.4mb/d lower than total OPEC production in October. Undoubtedly, the oil industry is currently entering into a new state of development which will come with its own unusual characteristics and norms. "This era is characterised by growing global concerns over the security of future energy supply", said Fahmi, adding that geopolitical risks, future markets and pricing mechanisms are among the major factors impacting the market. However, speculations have been highlighted as a major factor that negatively impacts on the stability of the oil market. "Speculations have created an unrealistic supply and demand market where traded oil, on paper, far exceeds the actual supplies in the market," said Libyan Minister of Petroleum Shokri Ghanem. To contain the negative role of speculations, the EU and OPEC agreed to jointly study the impact of financial speculative markets on oil prices. "Events will be organised where representatives of the stock market and financial institutions, as well as experts in the oil industry, will meet to discuss means to stabilise the market", said Barkindo. Providing for the necessary investment into the sector against a backdrop of an ever growing market demand is another major challenge that both consumers and producers have to deal with. "Doubts over future oil demand translates into large uncertainties over the amount that OPEC member countries will eventually need to supply, signifying a heavy burden of risk", explained Barkindo. In calculating the amount of crude oil required from OPEC countries over the next 15 years in terms of investment, the figure is a worrying one. "The figure ranges between $230billion and $470 billion, a huge amount for OPEC member countries, all with competing needs in such areas as health, education and infrastructure." A further challenge is the cost of infrastructure such as rigs and tankers. "Upstream costs have increased by 50 per cent since 2003", noted Barkindo. Tightness in the downstream is seen in the form of inadequate refining capacity in some leading industrial countries, which has been putting a lot of pressure on oil price levels. According to the OPEC statistics, it is estimated that $160billion in downstream capacity investment will be required by 2015, with another $150 billion needed for maintenance and the replacement of lost capacity. "Unless a constructive dialogue among all stakeholders and across the entire petroleum industry is held, there is little chance these challenges can be efficiently met," commented Sameh, adding that Egypt is willing to play a positive role in producers-consumers dialogue with the aim to achieve the hoped-for stability.