Stability through cooperation — it works!

OPEC Bulletin Commentary March-April 2017

OPEC’s ‘Declaration of Cooperation’ with a group of non-OPEC oil producers, set up in December last year to speed up the rebalancing of the international oil market, is already showing promise. In just the first two months of the initial six-month plan, which commits 24 leading oil producers to a production adjustment totaling around 1.8 million barrels/day of crude, the results have been above expectations.

In January, a conformity level to the adjustment of 86 per cent was achieved. That was already impressive bearing in mind the logistics involved in implementing changes to one’s production, which is not as simple as just switching oil taps on and off. But if the January performance was pleasing, then February data proved to be emphatic!

The second meeting of the Joint Ministerial Monitoring Committee (JMMC), set up under the ‘Declaration of Cooperation’ to oversee the enactment and progress of the initiative, announced in Kuwait City in March that the January figure had been exceeded in February by eight percentage points — to 94 per cent! There were understandably a lot of smiling faces. But it got even better. In looking at the numbers more closely, it quickly became apparent that some of the participating countries had actually over-conformed in February. By producing less than their individual targets, they had effectively made up the shortfall from some other countries that had not yet been able to reach their assigned levels, for one reason or another. That is cooperation on a grand scale and certainly never seen before in OPEC’s history.

Actually, the conformity figure could be even better still. According to the Reuters news agency, which is also tracking events, its survey has the level at 95 per cent for February. Whatever number is correct, it just goes to prove to the international community what can be achieved when coordinated teamwork is applied by a group of concerned and responsible sovereign states that are firm in their beliefs, serious in their intentions, and methodical in their actions. It certainly augurs well for the future of this alliance which will very likely be called upon again and again to exercise similar unity of action to correct other market disturbances in the testing years ahead. But one really has to consider the true significance of this cooperation. The adjustments by the producers involved are purely voluntary and they are effectively putting the betterment of others and the welfare of the international petroleum market as a whole ahead of valuable revenue-earning potential. This selfless act is why this whole process is truly historic.

From its inception way back in 1960, OPEC has been committed to two watchwords — stability and cooperation. The Organization is convinced that achieving stability through cooperation works — and is the best way forward for an industry that will always need to answer various challenges. The 24 nations that are working closely under the ‘Declaration of Cooperation’ are proving that it brings positive results. Obviously, OPEC would now like to see the number of producers signed up to this worthy initiative expanding. The simple fact is that the more countries it can get on board, the more effective the cooperation will be for restoring lasting oil market stability — and in a sustainable manner. Surely, with all industry stakeholders standing to gain from the current landmark efforts, it is only right and fair that everyone plays their part in the implementation of the production adjustments — however big or small — to ensure the initiative’s total success.

Of course, having been in the petroleum business for over half a century, OPEC is under no illusion as to the magnitude of the task in front of it. The international oil market is quite unique among all the commodity exchanges operating in the world today. It is extremely complex and sensitive to all manner of influence, both internal and external, and will clearly require continued vigilance and close monitoring on a daily basis.

As everyone in the industry agrees, fossil fuels will continue to play a leading role in global energy supply in the future. This fact makes what the OPEC and non-OPEC producers are attempting to do in the market right now even more imperative. Demand for oil and gas will grow considerably in the years ahead so it is vital to have the right conditions in place that support investment in new and existing capacity, which OPEC calculates will amount to some $10 trillion up to 2040 to satisfy burgeoning demand. That requires a market that is stable, predicable and sustainable. The cooperation the industry has been witnessing since the start of the year is the key to the oil market’s future success. It just needs what is being done right now to be even bigger and bolder. With everyone pulling in the same direction and putting unity and cooperation before self-interest, the future will take care of itself. And with stability restored, everyone stands to benefit.

OPEC Bulletin March-April 2017

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