Opening Remarks by OPEC Secretary General

Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the Webinar on ‘Energy Issues in the post-COVID-19 World’, Azerbaijan Center of Analysis of International Relations (AIR Center), 11 June 2020, via videoconference.

Mr Chairman and esteemed guests,

It is an honour to take part in this webinar with such a distinguished panel.

I thank Ambassador Farid Shafiyev for his eloquent remarks, and the AIR Center for organizing this very timely discussion.

Before I say a few words about the current oil market, I would like to recognize Azerbaijan’s historic and eternal contributions to the oil industry.

Baku was the birthplace of the world’s first industrial oil well in 1846.  We have a photo of this large wooden structure in the lobby of the OPEC Secretariat here in Vienna.  It is a prominent reminder that some of the greatest early advances in drilling, pipeline development, transportation and offshore exploration and production occurred in Azerbaijan.

The country has also been a trailblazer in working with international partners and investors.  The Nobel brothers were early investors in the industry and instrumental in launching the world’s first oil tanker on the Caspian Sea in 1877.  This great tradition of industrial collaboration and innovation has continued since the establishment of SOCAR 30 years ago.

The Baku-Tbilisi-Ceyhan oil pipeline, completed 15 years ago, symbolizes the country’s position as a vital energy bridge between the Caspian region and key markets beyond, including those here in Europe.

The world owes much to Azerbaijan for promoting international energy cooperation and for being at the forefront of efforts to ensure sustainable oil market stability.

In fact, President Ilham Aliyev was the first world leader to call on OPEC and non-OPEC countries to work together in rescuing the oil industry during the 2014-2016 market downturn. President Ilham Aliyev continues to be the Beacon of light and strong supporter of the OPEC and non-OPEC cooperation. The late Energy Minister Natiq Aliyev was instrumental in the discussions in 2016 that led to the ‘Declaration of Cooperation’ (DoC) between the OPEC and non-OPEC participating countries.  His able successor, our esteemed panellist, Parviz Shahbazov, has continued in the finest traditions of Azerbaijan, providing astute leadership, sophisticated diplomatic skills, and promoting cooperation among our countries through his unwavering support of the DoC.

Sixteen months ago, Azerbaijan hosted the 13th Meeting of the OPEC and non-OPEC Joint Ministerial Monitoring Committee, which provides the strategic guidance to the DoC countries.  The travel restrictions necessitated by COVID-19 interrupted plans for another Ministerial Meeting in Baku this year following the generous invitation of the President Ilham Aliyev when he granted me audience in Davos at the World Economic Forum in January 2020.

Azerbaijan is also an observer in the Gas Exporting Countries Forum. Its involvement in the GECF is a further extension of Azerbaijan’s global engagement in common with many OPEC Members Countries and DoC participating countries.

OPEC is very proud to have Azerbaijan in the DoC and extremely grateful for its high-level support.  As our Organization marks its 60th anniversary this year, it would be a pleasure to welcome Azerbaijan as a member of the OPEC family.

Mr Chairman and esteemed guests,

It has been exactly three months to the day since the World Health Organization (WHO) declared COVID-19 a global pandemic.  On that day, March 11th, there were slightly more than 118,000 confirmed cases in the world, and 4,300 fatalities.  Today there are more than 7.2 million confirmed cases with at least 411,000 lives lost.  On Sunday (June 7th), the WHO reported more than 136,000 new cases of this virus, setting a record for a single day.

In the flash of an eye, we have witnessed the worst public health crisis, the most severe economic downturn, and the most alarming oil market slump of modern times.  The oil industry is weaker and more vulnerable today than it was just a few months ago.

Allow me to reflect on events of the past few weeks and offer some perspectives going forward.

April stands out as a month without precedent in the history of OPEC.  We saw global oil demand slump by around 24 to 26 mb/dApril 20th was ‘Bloody Monday’ for the oil industry.  On that day, the price of the NYMEX West Texas Intermediate prompt contract for May plunged by $56/b to nearly minus-$38/b – the first time the benchmark has ever fallen into negative territory.  For a brief moment, producers had to pay people to take their oil.  Brent crude, the international benchmark, dipped to $19/b, down by around 72% from where it started the year.

Overall in April, the ICE Brent contract plummeted 21% m-o-m, while the NYMEX WTI contract lost 45% of its value amid bearish market sentiment.

Furthermore, there was a real risk that oversupply would have added a further 1.3 billion barrels to global crude oil stocks, nearly exhausting the available worldwide storage capacity.

Assuming we hit bottom during ‘Black April’, we are not out of the trough yet.

Our analysts at the OPEC Secretariat expect a severe global economic downturn this year, with the economy contracting by 3.4% compared to global GDP growth of 2.9% in 2019.  The most recent forecasts from the World Bank reveal an even more pessimistic GDP growth outlook of minus-5.2%, while the OECD just released their forecast (June 10th) showing minus-6.0% growth for 2020. These downside revisions merely reflect the high risks and associated uncertainties.

We project a historic decline in world oil demand of nearly 9.1 mb/d this year, to around 90.6 mb/d.  Before COVID-19, we expected world oil demand to top 100 mb/d in 2020, up by 1.08 mb/d from 2019.

Investment is another significant concern as we navigate through the rest of this year.  Our projections show CAPEX in non-OPEC countries plummeting by 23% in 2020, to about half the $741 billion record set in 2014Energy is among the key commodities most affected by the pandemic-induced slump.

As we know from the oil market’s sharp downturn in 2014-2016, unpredictable investment flows have severe long-term consequences for the industry.  It takes years to reverse the damage caused by the loss of highly skilled jobs and technological know-how, along with setbacks in exploration and production.

I can speak for OPEC Member Countries in pointing out that sudden dips in revenue and unpredictable investment make it a herculean task to finance economic and energy diversification, which are so important to current and future development.  These uncertainties also affect current operating budgets at a time when additional support is needed to strengthen health systems and stimulate economic activity.

The road ahead is cluttered with many uncertainties for the economy and the energy markets.  Yet despite the many downside risks, we are already seeing evidence of reduced volatility in the oil market.  The prices on both Brent and WTI have now bounced back to the levels we saw before lockdown measures were enacted around the world, with both benchmarks now oscillating around $40/b.

I believe a large part of the stabilization we have seen over the past few weeks can be attributed to two interconnected factors: the unparalleled actions undertaken by the countries in the ‘Declaration of Cooperation’ to arrest the market collapse and restore order; and the unprecedented support we have received in the process.

HE Parviz Shahbazov played a leading role in these achievements – often displaying his extraordinary diplomatic finesse and acumen.

In a series of marathon virtual meetings between April 9th and 12th, the DoC participants agreed to undertake the largest oil production adjustments in history.  The resulting adjustments of 9.7 mb/d for May and June, followed by tapered adjustments until the end of April 2022, were designed to halt the market’s dramatic slide and provide a platform for stabilization, recovery and growth.

The 23 DoC countries held our second significant series of virtual gatherings last weekend with a watchful eye on the ongoing market uncertainties.  On Saturday, June 6th, the OPEC and non-OPEC Ministers extended the April oil production adjustments for a third month, to the end of July, and reaffirmed the two-year window of adjustments.

Furthermore, the Ministerial Meetings unanimously reiterated all participating countries’ commitment to achieving full conformity to the adjustments.

For the first time since the DoC’s inception in 2016, the countries subscribed to the concept of “compensation” by those that were unable to reach 100% conformity in May and June.  These countries now have a means to make up the difference in July, August and September.  This key outcome lends further support to the market.

The participating countries also strengthened their monitoring mechanism, which is a main contributor to the DoC’s ongoing success in responding to changing market conditions.  The Joint Technical Committee and the Joint Ministerial Monitoring Committee of OPEC and non-OPEC participating countries will meet next week, on June 17th and 18th, and maintain a regular monthly meeting schedule for the remainder of the year.

Mr Chairman and esteemed guests,

The ‘Declaration of Cooperation’ has been a game-changer for the industry.  I believe the market would be in a far more fragile state today were it for the powerful response mechanism provided by this unique and voluntary framework.

From its beginning, the DoC has strengthened our flexibility and preparedness.  It has allowed a diverse group of oil-producing nations to work together to ensure a reliable, economical and secure energy supply to the benefit of producers, consumers, investors and the worldwide economy.

Yet the sheer scale of COVID-19’s impact on the oil market necessitated a broader collective support.

In the lead-up to our decisive DoC meetings in April, the leaders of the world’s top oil-producing nations, along with Energy Ministers of the G20 countries, called for unprecedented levels of cooperation and encouraged us to act – and act decisively.  There was overwhelming consensus that coordinated action was needed to avert a market collapse, which in turn would have devastating economic consequences.

Oil industry majors and independents have added their voice of support and in many cases have taken market-driven steps that have complemented the DoC-led stabilization efforts.  Leading policymakers, analysts and industry stakeholders welcomed the outcome of last weekend’s OPEC and non-OPEC meetings.

Building on this momentum, OPEC has carried out a series of discussions with stakeholders in the US, Canada, Europe, India and China to strengthen understanding and awareness.  We have also held regular discussions with select universities, think tanks, and the finance and energy institutions and agencies to exchange information and perspectives, and encourage deeper cooperation.

Today, OPEC and its Member Countries are stronger, more nimble and better positioned to confront extreme challenges like COVID-19 thanks to our cooperation and engagement with others.

We have also grown stronger because of the visionary decision of the OPEC and non-OPEC participating countries to establish the ‘Charter of Cooperation’ nearly a year ago, in July 2019.  The ‘Charter’ offers a platform to go beyond market-balancing efforts and address issues such as climate change, the energy transition and energy access in a coherent and inclusive way.

We cannot predict what will happen next with COVID-19.  We can hold out hope that there will soon be a vaccine against this virus, that our industries and businesses will recover quickly, and that we can resume the daily routines, as we knew them a few months ago.

Our experience in confronting the market risks posed by COVID-19 underscores the importance of high-level and multilateral cooperation.  We must not lose the opportunity to work towards broader and consensus-driven solutions that are beneficial to the industry and ultimately the entire world.  Our door is always open to others who share our values, concerns and hopes for a better future.

I would like to close with a very apt quotation from the legendary poet Nizami Ganjavi who said:

“In the hour of adversity be not without hope, for crystal rain falls from black clouds.”

Ambassador Shafiyev, I again thank the AIR Center for organizing this well-timed and extremely valuable discussion.  Our interventions today provide a platform for informed and constructive dialogue, and a window to diverse regional perspectives.

Thank you for your attention and I look forward to our discussion.

HE Mohammad Sanusi Barkindo, OPEC Secretary General

HE Mohammad Sanusi Barkindo, OPEC Secretary General

HE Parviz Shahbazov, Azerbaijan’s Minister of Energy

HE Parviz Shahbazov, Azerbaijan’s Minister of Energy

The webinar was hosted by the Azerbaijan Center of Analysis of International Relations (AIR Center)

The webinar was hosted by the Azerbaijan Center of Analysis of International Relations (AIR Center)