A year on from December

OPEC Bulletin Commentary November 2017

It is sometimes said that history is forged by ordinary people doing extraordinary things. The tides of the affairs of mankind, their ebbs and flows, are driven by such extraordinary acts. Significant moments are marked by the decisive actions and words of people shouldering responsibility to address a common challenge. We hasten to add — perhaps unnecessarily — that such actions and words are rarely the product of one solitary individual acting alone or unilaterally. More often than not, they are the consequence of individuals working together, of groups forming partnerships, of stakeholders sharing a vision.

It is with such ideas and concepts in mind that we should view the landmark ‘Declaration of Cooperation’ of December 10, 2016. This decision by OPEC’s 14 Member Countries and the ten non-OPEC oil producing nations that chose to participate underlined the shared resolve they all had in achieving an accelerated realignment of global oil supply and demand at a time of critical importance.

In this Special Edition of the OPEC Bulletin, we celebrate and honour the ‘Declaration of Cooperation’ — not only because it is historic in itself but also because it is a noteworthy achievement on so many other levels: It is the first production adjustment since Oran 2008. It is the first time that participating non-OPEC countries are committed to a joint agreement for production adjustment. It allows for Iraq to be effectively part of the production management for the first time since 1998, while separately, it includes a compromise solution accepted by IR Iran that takes into account its temporary special circumstances with a cap on its production. It establishes an OPEC and non-OPEC Joint Ministerial Monitoring Committee to monitor the implementation and compliance of the decision and to demonstrate the joint commitment to and collaboration in production adjustments. It institutionalized a framework for structured, sustained and transparent partnership with non-OPEC countries. Finally, the Declaration and the extensive work that went into it have been openly shared with the public to reflect its credible, equitable, transparent, measurable and verifiable features.

Any one of these achievements alone would be worthy of celebration and proper tribute; but taken all together, the many achievements of the ‘Declaration of Cooperation’ mark an era — one which those who come after us will look to for inspiration and those who were involved will recall with pride.

With the ‘Declaration of Cooperation’, the 24 producers upheld their responsibility for oil market stability in the interest of all oil producing and consuming countries. Their monumentally significant decision, taken after extensive rounds of consultations in order to address the prevailing market realities at the time, were considered to be much more than just a short-term ‘fix’; they were seen as essential in the medium- and long-term as well. As a result, the Declaration demonstrated and even exemplified a commitment to the global community in shared efforts to restore and sustain market stability with positive and broad implications for the world economy, the oil industry and oil producing countries.

The signatories of the ‘Declaration of Cooperation’, as has been well-documented in various other media, further agreed to reinforce their decision of implementing a production adjustment through a Joint Ministerial Monitoring Committee, consisting of oil ministers, co-chaired by Kuwait and the Russian Federation, and assisted by the OPEC Secretariat. In a joint effort to strengthen and institutionalize their collaborative actions through a structured programme of joint activities and regular meetings, they all agreed to regularly review the status of their cooperation at technical and ministerial levels. Thus, one could also see that the mechanisms and tools created by the Declaration all embody the spirit of cooperation that undergirds the Declaration itself.

Those were the apparent conditions surrounding the Declaration. But beyond the meetings and behind the Declaration itself, lay another important aspect: the profound and unprecedented amicable coming together of a group of disparate oil producers. The Declaration is, in this sense, the public manifestation of a consensus-building spirit that animated all 24 producers. It motivated them and invigorated them in such a way that they repeatedly chose to meet in an indefatigable attempt to find a way out of the dire situation then faced by the oil market, which also threatened the long-term health of the oil industry and the many stakeholders around the world which depended on it.

It’s worth recalling that the background conditions were, at the time tempestuous. Crude oil prices had been trapped in a downward slide since mid-2014, primarily driven by supply levels. The OPEC Reference Basket price fell by an extraordinary 80 per cent between June 2014 and January 2016. An abundance of supply above market requirements, coming from North America and elsewhere, turned into a significant stock overhang for both crude and products, which further pressured oil market and prices.

The consequences of this low oil price environment were manifold, not least of which was the threat to the global economy. This fact had been highlighted by other leading world economic institutions such as the IMF, OECD and WTO. In addition, there were other negative consequences that included low and falling growth along with rising inequality; weak trade and financial distortions, which had damaged global growth prospects; and uncertainties with regard to geopolitical developments, the European immigration crisis and the uncertainties surrounding the final outcome of the Brexit negotiations.

But despite all these sources of uncertainty and the different kinds of challenges they represented, the 24 signatories of the Declaration found ways to see beyond parochial concerns and view the problem together, collectively, with the aim of finding a way forward that might benefit all of them — as well as the world as a whole.

On many other occasions, capable men and women facing different, unrelated and lesser challenges have fallen short, and have been unable to come together for the greater good. In the case of the 24 producer countries, they managed to rise to the occasion, amid extensive consultations and multiple rounds of shuttle diplomacy, and produced an extraordinary action that has changed the course of history.

While we are still looking forward to the continuing implementation of the market rebalancing long sought by so many, the progress made in the year has been remarkable. Furthermore, the relationships built and the ties made have been exemplary — and they are now serving as a model of how to tackle other problems in the future. Whether it is the sharing of technical know-how or creating partnerships to collaborate on research projects or simply meeting to share different and sometimes divergent outlooks on the market, a precedent has been set for all future work — one in which dialogue and communication become essential tools to address collective problems.

OPEC Bulletin November 2017

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