Opening Remarks by OPEC Secretary General
Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the International Monetary Fund, 12 December 2016, Washington, D.C., U.S.A.
Ladies and gentlemen,
It is very good to be here again. I’d like to thank you all for coming. I am looking forward to exchange of views – not only on recent oil market developments but on their potential impact on the global economy.
OPEC and the International Monetary Fund benefit from having a long and cordial relationship. You might even say that there is a ‘partnership’ in place, forged in part through OPEC’s regular participation in the annual IMF/World Bank meetings.
In addition, the IMF’s rigorous analysis of global economic and financial conditions informs OPEC’s forecasts and outlooks for the short-, medium- and long-term, especially as embodied in our World Oil Outlook.
Our two organizations also share something important: a preoccupation with stability.
The loans and technical assistance the IMF provides to developing countries – including OPEC Member Countries – are based on rigorous analytical work with the aim of fostering financial stability. And over the years, the IMF’s swift action and practical advice has not only prevented smaller problems from becoming global crises but has helped instil discipline in situations of neglect. ‘Stability’ has been your watchword.
At OPEC, we abide by the same watchword. Our consensus-based decisions – which are informed by our own research and analytical work – are also designed to bring stability. And our actions – which result from negotiations among our Member Countries – are designed to foster discipline when global market conditions are often agitated or disordered.
Consider the work that OPEC did recently in the context of a very unbalanced oil market. For several months, we worked tirelessly to consult with the world’s oil producers – both OPEC and non-OPEC. These efforts paid off – and we were able to reach a consensus to bring much-needed stability back to the market with an effective decision on oil production levels. This is the “Vienna Agreement” of the 30th of November.
It would be opportune to give you a brief overview of the broad consultative process that led to this Agreement.
The first phase of negotiations, which took place at the 170th Meeting of the OPEC Conference in late September, led to what is called the “Algiers Accord”.
This embodied an agreement by OPEC Member Countries to cut production for the first time in eight years – to between 32.5 million and 33 million barrels per day. The means of implementation were left to a High-level Committee of OPEC Members.
At the same time, OPEC began extensive bilateral and multilateral consultations and discussions. This was careful, delicate, time-consuming work. And it culminated in the historic Vienna Agreement at the end of November – the first production adjustment since the Oran Decision of 2008.
The Vienna Agreement successfully implements a production adjustment with a target of 32.5 million barrels per day. Scheduled to go into effect on the 1st of January 2017, the Agreement is expected to accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward.
The Vienna Agreement is note-worthy because it includes the participation of all Member Countries – some of them for the first time since 1998.
The Agreement demonstrates the unity, flexibility and cohesion of our Member Countries.
The Vienna Agreement also institutionalizes a framework for structured cooperation between OPEC and non-OPEC producing countries on a regular and sustainable basis. This is appropriate, since the process leading to the Agreement included the participation of non-OPEC countries. They repeatedly declared their resolve to achieving a fast-tracked realignment of global supply and demand.
In fact, this past Saturday, we had a joint ministerial-level meeting with eleven non-OPEC producers. The discussions demonstrated a shared commitment to rebalance the market and to see a return to ‘sustainable stability’. It now remains to be seen exactly how we move forward for broader implementation of the Agreement.
In the meantime, it is worth remembering that the Vienna Agreement has positive implications for the global economy, the oil industry and oil producing countries.
First, there are important, beneficial and well-established links between oil and the global economy.
We explored this the last time we visited the IMF in October, which coincided with the G24 Ministerial Meeting. This was right on the heels of the Algiers Accord, which was a necessary step – not only in our efforts to accelerate the drawdown of the stock overhang but to reduce volatility in the medium- and long-term.
It had been also noted the weaker-than-desired global growth, the sharp decline in investments and the considerable negative impact this was having on the energy sector of major economies. While other key dynamics across the globe were also of concern at the time, reaching a successful decision to stabilize the oil market would provide enough positive support to global economic activity.
In short, the central message was that unless a production agreement was reached, global economic growth was likely to remain quite modest in the short-term.
It was not just a question of supporting global economic growth and helping to incentivize investments to the energy sector – and thereby supporting GDP growth. It was also a question of helping central banks achieve their inflation targets and supporting the labour market by helping to create jobs. The Vienna Agreement contributes to an improvement in conditions in all these areas.
Second, there is the Agreement’s beneficial impact on the oil industry.
The Vienna Agreement means that prices will stabilize to levels that are more conducive to the kind of investments that the industry needs. This not only ensures that it will remain dynamic but that it will be able to meet future demand levels.
The Agreement also reduces the pressure to cancel or postpone planned investments in the upstream, while also ensuring that the necessary investments in capacity expansion – to offset decline rates, for example – will continue.
Related to this is my third point: that the Vienna Agreement will have a beneficial effect on the overall economic performance of oil producing countries.
The Agreement strengthens their hydrocarbons sector and supports the livelihoods of those working in the sector.
It also ensures that the oil industries in producing countries shall regain some of their dynamism – which, in turn, helps them to operate once more with the expectation of generating sufficient oil revenues.
These are all points worth keeping in mind – especially when one remembers that OPEC’s Member Countries are all developing countries. Together they represent a share of about 8 percent of the global economy and, to a large degree, their budgets depend on oil revenues.
As we look ahead to the short-, medium- and long-term, we continue to closely monitor oil market developments. We do this with an appreciation for what the Vienna Agreement has already achieved – and with an understanding of the conditions and challenges elaborated in our flagship publication, the World Oil Outlook, now in its 10th edition.
Now, I would like to share you with a few observations from this year’s edition, before Dr. Jorge León, a member of our Research Division at the OPEC Secretariat, gives you a more in-depth presentation.
Our 2016 Outlook analyses the impact of the current industry cycle on investments – particularly in 2015 and 2016. Although global spending on exploration and production is expected to fall slightly less this year than last year, the combined amount for the two years represents a loss of more than $300 billion.
In terms of total primary energy demand worldwide, the Outlook sees it growing by 40 percent in the period to 2040. And while fossil fuels are expected to see their share in the energy mix fall by 2040, oil shall remain the fuel of choice for many more years to come.
In fact, oil demand is expected to reach 109 million barrels per day. The bulk of this oil demand growth is seen coming from the road transportation, petrochemicals and aviation sectors. And developing countries will continue to lead much of this growth.
There are many other features worth highlighting. But I shall leave that for my colleague to elaborate on. However, I would like to quickly note that World Oil Outlook responds to various needs.
First of all, it is part of our quest to more clearly identify market drivers, challenges and uncertainties, and to better understand the potential impact of policies, technology, and environmental concerns.
In addition, the Outlook also serves as a way to enhance data transparency in the market, making OPEC’s analysis of market conditions available to all stakeholders – as well as our understanding of the complexities of the oil industry, both in the upstream and the downstream.
Ladies and gentlemen,
We have seen how important such work is during our recent deliberations.
Throughout the long process leading to the Vienna Agreement, dialogue, close consultations and transparency between all energy stakeholders has been of paramount importance. And our constructive efforts to date have demonstrated that compromise and flexibility can lead to concrete achievements.
I’d like to conclude by saying that it is our duty to always seek ways to overcome differences, exchange views, and find the unified voice that the oil industry and the global economy need.
I am optimistic that continuing with such efforts can lead to greater stability and sustainability in the market.
But since it is a truth of life that we should take nothing for granted, we must continue to work together – OPEC and non-OPEC, as well as producers and consumers. We all have something to gain by working together – and much to lose if we do not.
HE Barkindo delivers his remarks at the IMF