The IEA and OPEC are different organizations. Their briefs are different. They represent two worlds, two distinct interest groups and two schools of thought. They diverge rather than concur on major issues, but professionals run them; they may agree to differ yet both have no constraints in concurring, either. Despite all the odds, this industry, so very crucial to civilization, is maturing.

OPEC has been emphasizing for a long time now, that fundamentals — demand and supply — no more control the oil markets. Non-fundamentals — speculation to be specific — are now in full control and the world needs to rein them in.

At a point in time last year, while the bulls were in total control of the market, Minister of Petroleum and Mineral Resources Ali Al-Naimi underlined that the bond and equity markets in the US alone were valued at roughly $50 trillion. And then if money managers decided to reallocate a nominal one-half-of-one percent of those assets into crude, then that could translate into $250 billion influx of funds into the trade. And this equaled the value of the entire NYMEX WTI markets, having all the potential to destabilize the markets. That happened in July 2008 too and could happen again. Markets needed transparency, OPEC has been insisting on this for a long time.

The point now seems to be getting through. More and more, new adherents to the theory are emerging.

For a change now, the OPEC viewpoint seems to be gaining ground, getting the due attention it deserves. This was not based on rhetoric or partisan energy politics, it was based on facts, simple and pure facts, one could say now without the fear of being ridiculed.

The world of energy today increasingly appreciates that wide scale speculation in oil markets carries tremendous risks. When Asian energy ministers met in Japan earlier this year, the issue of speculation was underlined, with everyone — producers as well as the consumers — emphasizing it could cause havoc to the global energy markets.

Interestingly now even the IEA, the OECD energy watchdog and the EU are also emphasizing that oil markets risk another speculative bubble unless the financial sector is reformed, reined in and transparency is enhanced.

“The 2008 bubble could be repeated if adequate regulatory reforms, including greater transparency, (are) not made part of an overall reshaping of the global financial sector,” the European Union said in a statement issued following the talks with the OPEC in Vienna. The meeting agreed the role of speculation in financial markets “had not been resolved.” Interestingly after the Vienna meeting last week, the two sides also appeared concurring that the current market prices were not yet a threat to global economic recovery. That was a major step ahead, indeed.

The European Union’s Energy Commissioner Andris Piebalgs, while giving a rare public consent to the idea of fair pricing, said a crude price approaching $70 was not damaging.

“What we also discussed in our meeting is that $70 per barrel, the current price, definitely does not impede the recovery of the economy,” he said. “We really believe the current situation has some good stability. If it continues it will be a chance for (economic) recovery and also guarantee that upstream investments will continue.”

Commenting on the issue, the IEA Chief Economist Fatih Birol, too, underlined: “In a normal world, when the global economy is running in order, to bring new investments in the offshore and oil sands to the market, you need a price level of $75 a barrel.”

But in the current economic context, any strong price rise from the current price would hurt the economic recovery, Birol cautioned.

OPEC has often argued that low oil prices chokes off investment in new supplies, and the joint statement also underlined that the inability to invest in new production capacity “could lead to a perpetuation of damaging boom/bust cycles.”

OPEC has been clamoring for it for some time now. Now the IEA also seems conceding the same. Better late than never.

The recession is expected to cut investments in the energy sector in 2009 by more than the $100 billion, and upstream oil and gas investments are expected to fall 21 percent, the IEA said in its midterm report presented before the G-8 energy ministers in May and released only last week.

Good old friend Birol, while commenting on the report, cited three reasons for the worse-than-feared decline in investments: “The first thing is that the oil price prospect is still uncertain with most companies not having yet increased their price assumption to base their projects from $40-$45.” Citing other reasons, he said the fact firms did not foresee demand picking up, and that key producing countries still had some spare capacity to be used. “For those reasons I think it would be wrong to say that the investment appetite of the oil companies has returned,” he clarified. It is definitely a very pleasing and positive development that OPEC and the IEA are on the same grid, at least for now, concurring on some of the most pressing issues afflicting the energy world today. And the organizations — not a “cartel”—need to be praised for rising above their petty considerations. A good omen indeed!