VIENNA (Dow Jones)--Ahead of oil prices hitting $100 a barrel Wednesday, OPEC's top executive predicted a respite from erratic oil price swings this year and expressed continued frustration at a market influenced as much by speculative trading as supply management. Abdalla El-Badri, secretary general of the Organization of Petroleum Exporting Countries, in his most recent interview, told Dow Jones Newswires that oil price volatility last year was "temporary."
Crude traded in New York rose to $100 a barrel Wednesday off a single trade, before later settling at an all-time high of $99.62 a barrel. OPEC has declined to comment.
"We would like to see a price created by supply and demand fundamentals," the 67-year-old Libyan says. "We're not interested in a price that is today $100 and tomorrow $40. We would like to see a stable price. Let me be clear. We have no price target."
El-Badri firmly rules out a return to an explicit preferred price range, a mechanism it dropped two years ago after prices accelerated through $50 a barrel. "We are leaving this one to market forces," he adds.
A year into his three-year tenure running OPEC, El-Badri predicts a return to stable oil prices in 2008 without an economic meltdown, rules out the prospect of an OPEC-wide pact on pricing oil in a basket of currencies and declares its job last year well done.
The average price for OPEC in 2007 was "about $71 a barrel, so we are far away from the $100 you mention," El-Badri said during an interview at OPEC's Vienna secretariat.
Besides, he says, the volatility experienced to date "is temporary," implying a weakening in global economic growth to 4.8% this year against 5.2% in 2007 might help smooth some of the peaks and troughs that have roiled the oil world.
Still, "for the last 47 years we've had our ups and downs," he says. "Fortunately, this year (2007) has been one of the most fruitful years for OPEC."
El-Badri's measures of success exclude the luster that high oil prices have given to OPEC's members. Instead, he throws the spotlight on the group's membership, which grew last year to include Angola and Ecuador, lifting the cartel's share of world oil supply by 2.5 percentage points, the relatively trouble-free Heads of State Summit held in Saudi Arabia and what he says is the emphasis on economics, not politics, heard among ministers these days.
A closer look at OPEC's two primary tasks, however, presents a more mixed scorecard. Looking after the member countries' interests looks relatively easy when set alongside the soaring record prices they've reaped. "We just want to protect the interest of our member countries. We want to have a fair price for our commodity," El-Badri says.
But within that lies an inability or unwillingness to tame the volatility that saw oil surge in the space of 10 months from less than $50 a barrel in January last year to almost $100 a barrel in November. Crude trading in New York closed out the year 57% higher, the largest such gain since 2002.
Last year saw formal cuts in production by OPEC, some of which were subsequently reversed late in the year. High oil prices are an unwelcome headwind for the global economy and such acute volatility means budgets for business and industry are a hostage to fortune.
El-Badri knows this but if so, why has OPEC been unable to deliver on price stability - one of its core commitments? The phantom hand of financial speculators looms large in the secretary general's conversation. Burned by their exposure to the mortgage crises in the U.S. and Europe, hedge funds and institutions have, in the eyes of El-Badri, wrested control of the oil price and are pulling hard on the levers of influence.
OPEC saw this coming.
"We talked about the (sub-prime crisis) in May and June; everything was smooth until September. September, we had a disconnect between market fundamentals and the price" of oil, he says.
"The market is being, I don't want to say invaded, but there are a lot of entities in line between the producers and consumers," he says. "They are taking advantage of the political situation in the Middle East, they are taking advantage of the housing problems in the United States, the refining situation in the United States too."
If so, then OPEC - mainly swing producer Saudi Arabia - with more than 2.5 million barrels a day of spare capacity available could wrest control of the price by opening the spigots, no?
"We are not in the business to control the market and we only produce 40% of the market," says El-Badri. But it is 40% of the oil market that lies at the mercy of the global economy.
El-Badri isn't part of the school of thought that believes the rapidly-developing economies of China, Brazil, India and the Middle East have decoupled from the U.S. and Europe, making them immune to any economic slowdown. Those countries are predominantly responsible for forecast growth in oil demand this year of 2.5%, according to the Paris-based International Energy Agency.
"The world is one world. If something happens in the U.S. economy, of course it will affect China, the Middle East and the whole world. Everyone will be affected," says El-Badri.
"We have to watch out on the American economy. That the world economy will slow down is a challenge for us," though "what's going to happen in the world economy isn't going to be a crash. It will be a gradual slowdown," for which oil prices can't be blamed, he adds confidently.
It seems the shallowness of the challenge to oil demand means there will be no threat to OPEC unity over how production cuts or increases should be shared, El-Badri says.
"I don't see it as a testing year. It will be more or less the same as 2007. I'm sure it will pick up in 2009 and 2010."
And despite political grandstanding at the OPEC Summit by Hugo Chavez, the firebrand president of Venezuela emboldened by the return to the OPEC fold of political ally Ecuador, "the discipline now in our organization I consider...to be excellent," El-Badri adds.