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Foreword

1

Foreword

Mohammad Sanusi Barkindo

Secretary General

n its

long history, the oil industry has certainly seen

periods full of challenges and others laden with op-

portunities. But the significance of 2016 stems from

the convergence of so many different factors and the

subsequent response at year-end of various energy

stakeholders around the world. This lengthy and re-

warding process culminated with a series of decisions

and the renewal of broad-based optimism over the

near-term oil market prospects.

At the start of 2016, things had been much differ-

ent. Producers and consumers alike had increasingly felt

the pressure of apersistent oilmarket downturn,marked

above all by a dramatic price decline. This had begun

in mid-2014, continued throughout 2015 and was pro-

longed during 2016, making it one of the oil industry’s

longest, most recent and protracted down cycles.

Unlike previous cycles, however, this recent cycle

had been significantly supply driven. However, while oil

supply growth had been outpacing demand growth for

several quarters, global inventories during the year had

begun to fall. In fact, over the course of the year, com-

mercial stocks had fallen from 380 million barrels (mb)

in February to below 300 mb by the end of the year.

Nevertheless, adverse conditions in the oil mar-

ket and, to a far lesser degree, in the global economy,

continued to weigh on the industry.

Investments in the oil industry declined by 26% in

2015 and by 22% in 2016. This made for quite difficult

conditions across the whole value chain. As a result,

many companies faced financial and operational chal-

lenges, and job losses were seen across the industry.

In terms of oil demand growth, conditions in 2016

were comparatively healthy. Driven in part by a return

to robust economic growth in major consuming coun-

tries and by ongoing demographic and transportation

trends, oil demand growth performed better than ex-

pected in OECD Asia Pacific and Europe.

Overall, the global economy was relatively healthy

during most of 2016, with solid improvements in the

growth dynamics seen mostly in OECD economies. The

economies of some leading developing countries also

seemed to have been slowly coming out of a recession

in 2016, while economic growth in other countries re-

mained rather robust for most of the year — despite

some dampening of domestic consumption.

Given recent macroeconomic indicators as elabo-

rated on in OPEC’s recent

Monthly Oil Market Report

, it

is worth mentioning that oil demand growth is expect-

ed to remain quite solid in 2017 as well.

Yet despite the relatively positive and supportive

global economic environment, the oil industry in 2016

continued to labour under significant pressure. The

global oversupply and widespread price downturn had

been too burdensome, and both consumers and pro-

ducers alike had experienced their negative impacts.

This led to the widespread recognition that for the sake

of the industry and the future stability of supply, things

I