Turning a page in oil’s history

OPEC Bulletin Commentary January-February 2017

The proof of any agreement is not in its signing, but in its application and successful implementation. On December 10, 2016, 24 leading global oil producers made history in Vienna, Austria when they put their signatures to a ‘Declaration of Cooperation’ that committed the countries to a sizeable adjustment in crude oil production in support of much-needed market stability. The landmark move between the 13 OPEC Member Countries and 11 non-OPEC producers was the culmination of many months of intense discussion and negotiation, often involving the highest level of heads of state and government.

After much lobbying and shuttle diplomacy throughout most of 2016, the parties finally came together in the Austrian capital in December to pledge their support for a joint initiative aimed at helping to correct a market imbalance that began in the summer of 2014 and worsened to become the longest down-cycle in the industry’s history. The repercussions of this have been felt throughout the entire international oil and gas sector with producers, consumers, investors and oil companies all feeling the brunt. Many thousands of oil workers have found themselves without employment, producers have lost essential revenues required for their socio-economic development, while consumers have been facing a future of inadequate energy supplies because the necessary investments in the extra capacity required have been either shelved or cancelled altogether.

As the downturn deepened, it became more and more apparent that something had to be done. For its part, OPEC has been calling for such cooperation between the world’s major oil producers for most of the Organization’s existence, which stretches over 56 years. From the early beginnings, OPEC and its Member Countries realized that with something as sprawling, complex and sensitive as the international petroleum industry, structured cooperation and coordination of policies among the main parties — producers and consumers alike — would be the ideal course to take, in order to overcome the various challenges that would be sure to come the way of a sector that stands as one the most important pillars of the world economy.

Strength in unity — unity in strength has always been the Organization’s unwritten motto. It was therefore considered a personal triumph when OPEC’s Oil and Energy Ministers sat down in Vienna with their counterparts from some of the world’s most influential non-OPEC producers and came up with a plan of action that will inevitably help all oil industry stakeholders, as well as the global community in general. The last time that happened was some 15 years ago, but to nowhere near the same extent and certainly not with the same level of seriousness.

The historic December ‘Declaration’ followed OPEC’s own action at the end of November, when the Organization decided to adjust its production by 1.2 million barrels/day — the first such accord in eight years. It now means that, together, the 24 participating OPEC and non-OPEC producers of the ‘Declaration of Cooperation’ are combining to remove around 1.8m b/d of crude oil from a global market that has been suffering from oversupply for far too long. The immediate aim is to reduce an overhang in commercial crude oil stocks that has been preventing a rebalancing of the market. Once this is eliminated, and in tandem with rising demand, sustainable market stability should be restored, with prices once again returning to levels more conducive to investment, which has slumped alarmingly over the past two years.

Both the OPEC ‘Vienna Agreement’ and the ‘Declaration of Cooperation’ came into force on January 1. So, all eyes have been on the implementation of the decisions. And the results of the first-month analysis have only been encouraging. A committee set up to monitor the OPEC/non-OPEC accord’s implementation held its inaugural meeting in Vienna on January 22. Its five members — Algeria, Kuwait, Venezuela, Oman and the Russian Federation — in looking at the early data were extremely pleased with the results. The meeting was also attended by Khalid A Al-Falih, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, in his capacity as OPEC Conference President.

“Right now we are monitoring the production data coming from the OPEC data centre — and the results so far are very promising,” Committee Chairman, Issam A Almarzooq, who is Kuwait’s Minister of Oil and Minister of Electricity and Water, told a press conference after the meeting.

Co-Chair, Alexander Novak, Minister of Energy of the Russian Federation, was equally as emphatic: “The results we are observing … are exceeding our expectations. In fact, many countries are going beyond what has been agreed in December in working strongly to the letter in the spirit of the ‘Declaration’.”

Just a few days after the landmark ‘Declaration of Cooperation’ was signed in December, a delighted OPEC Secretary General, Mohammad Sanusi Barkindo, said at the Petrotech 2016 Conference in New Delhi, India that the world was on the verge of turning a historic page in global oil. Of course, that was before the OPEC/non-OPEC agreement came into force on January 1. Following the positive outcome and confidence expressed at the inaugural meeting of the monitoring committee, the Organization’s chief executive might want to rephrase that statement to “has turned” a historic page. But, ultimately, only the 24 participating countries — and hopefully any other producers that decide to join the effort — can make that a reality, for the benefit of all concerned.

OPEC Bulletin January-February 2017

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