The need for decisive, collective action
OPEC Bulletin Commentary October 2016
Last month’s OPEC Ministerial Meeting in Algiers resulted in what can only be described as an encouraging, optimistic, and positive sign for the oil markets: an historic agreement on production cuts to foster market stability. The ‘Algiers Agreement’ most certainly reflects a consensus among Member Countries and signals an important shift in attitudes.
This is the first such OPEC agreement since the Oran, Algeria, decision of 2008 and reflects a broad recognition of the realities of the market today. It also expresses a collective understanding that focused negotiations are still relevant and that concrete actions are greatly needed. Such an understanding — and the engagement among producers that it has prompted — raises the possibility of leaving behind the latest cycle of volatility.
Furthermore, the Algiers Agreement has been roundly welcomed by many stakeholders, particularly since the low price environment of recent years has proven to be quite persistent. It points the way forward.
At the same time, what emerged out of the discussions and negotiations held in the ‘pearl of the Mediterranean’ last month — which began with the 15th IEF Ministerial Meeting and ended with the 170th OPEC (Extraordinary) Conference — was a very clear sense that such gatherings are absolutely essential for the continued health of the industry. This is something that OPEC has always maintained — and it is something that the IEF has been able to foster successfully every year.
The benefits and outcomes of such events — which are marked by dialogue, and supported by an exchange of outlooks and perspectives — are often difficult to quantify. But it is no exaggeration to say that keeping the lines of communication open with producers (and consumers) is critical in an industry that is complex, capital-intensive, and prone to external shocks. This is precisely why OPEC routinely engages in dialogue meetings with other energy stakeholders — such as the EU, Russia and China, to name but a few.
And it is precisely why OPEC regularly calls for enhanced dialogue with other producers, particularly with increased sharing of market data and energy outlooks, and stronger collaboration. This is, in fact, exactly the kind of work that we carry out regularly at the OPEC Secretariat and through the Organization’s participation at industry events.
It is also the kind of work that OPEC seeks to encourage through consultations with its Member Countries — and which it hopes to inspire among other non-OPEC oil-producing countries as well.
In fact, one thing has become increasingly apparent is that such work is required of all energy stakeholders, not just OPEC Member Countries. OPEC cannot be expected to go it alone.
Although its Member Countries hold around 80 per cent of global proven crude reserves, they are only responsible for approximately 40 per cent of world crude production. This means that the lion’s share of global output comes from other non-OPEC sources.
It is encouraging to see that these other non-OPEC sources are now considering how they, too, may act in order to better shoulder some of the responsibility. Through ongoing consultation with OPEC and other producers, they are seeking to also make some kind of contribution, like OPEC, to global efforts to bring back market stability.
At OPEC, we remain deeply optimistic about the possibility that the Algiers Agreement will be complemented by precise, decisive action among all producers — the kind of action that we need in order to see prices supported and short-term volatility avoided.
In the meantime, industry observers should remember that they should not be too quick to judge or criticize the Organization or its Member Countries. Over the years, we have seen how wildly inaccurate their predictions have been. What many of them have failed to recognize is that OPEC’s great strength is its global reach and its diversity. Its great value is found in the continuing willingness of its Member Countries to confer, consult and coordinate actions if and when necessary.
As the years have passed and the market has evolved, the importance of OPEC’s role has, in fact, only increased — proving all those unfortunate nay-sayers wrong once more.
This time, in the wake of the Algiers Agreement, we have no doubt that the same expression of unity and strength that was clearly on display in Algeria will carry the day in the end — particularly if it is joined by the decisive action of non-OPEC producers. That is the kind of collective, concerted and coordinated action that we need today.
