Opening Remarks by the President of the OPEC Conference

Delivered by HE Khalid A. Al-Falih, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, and President of the OPEC Conference, at the 4th Meeting of the Joint Ministerial Monitoring Committee (JMMC), 24 July 2017, St. Petersburg, Russia.

Your Excellencies, Ladies and Gentlemen: Good morning.  It is a pleasure to be back in St. Petersburg, and I would like to thank His Excellency Alexander Novak both for hosting this gathering and for his tireless efforts and strong support for the effective cooperation between OPEC and key non-OPEC producers—including, of course, the Russian Federation.

I also want to acknowledge the efforts of the Joint Market Monitoring Committee under the leadership of the Minister of Oil and Minister of Electricity & Water of Kuwait, His Excellency Issam A. Almarzooq; the contributions of the Joint Technical Committee; and the work of the OPEC Secretariat and His Excellency Mohammad Barkindo.  I would note that at our last meeting in May, delegates agreed to expand the mandate of the JMMC to continue to monitor levels of conformity and make additional recommendations, if necessary, in light of changing market conditions.

Since that last gathering, we have witnessed continued pressure on the market, underpinned uncertainty about supply-demand developments.  Before addressing those doubts, however, let me first mention three critical positive trends going forward:

  • First, almost a decade after the world economy was rocked by financial turmoil, the global recovery has finally become “broad-based and stable,” according to most major economic institutions.
  • Second, oil demand is picking up, from moderate growth of one million barrels per day in the first quarter of the year to 1.5 million in the second quarter, including rising demand growth in the key consuming markets of China, India and the United States.  In coming years, we expect that oil demand will continue to increase at a healthy pace.
  • And the third key positive trend is the reverse in the build-up in global inventories.  For example, US inventories have fallen from a peak in March 2017 of about 538 million barrels to a little more than 490 million barrels.  The most recent data show that OECD crude oil inventories as a whole are 250 million barrels above the five-year average, down from close to 340 million barrels in January.  Over the first half of the year, our collective efforts have pulled close to 350 million barrels in aggregate from global supply—so you can imagine where the market would be had we not acted.

In my view, these trends will continue to chip away at the inventory overhang, so it is only a matter of time before inventories return toward more normal levels, further strengthening global markets.

Despite the positive indicators I just mentioned, we must acknowledge that the market has turned bearish with several key factors driving this behavior: reported compliance not matching export figures, increased Libyan and Nigerian production, US shale forecasts, and finally the outlook past the March 2018 expiry date of our agreement.

In terms of compliance, we have put in place a robust monitoring mechanism, comprising the joint monitoring and technical committees which rely on production reports from secondary sources.  In our discussions we will review the report of the Joint Technical Committee, which has examined the implementation of last year’s production decisions and how this has impacted stock levels.

Although conformance with the production agreement remains strong at the aggregate level, some countries continue to lag—which is a concern we must address head-on.  In addition, exports have now become the key metric for financial markets, and we need to find a way to reconcile credible export data with production data and our monitoring mechanism.

The other major issue that markets are focused on is the expansion of supplies from Nigeria and Libya, both of which have been exempted from our agreement, and of course we remain supportive of our partners in both of those nations as they work on the recovery of their industries and economies.  The committee, however, should monitor the impact of such growth on global supply-demand balances.

Looking at US tight oil, while the drilling rig count and production growth accelerated in the last few months with the recovery in oil prices, the sharp rate of increase in rig levels has already started to ease significantly.  There are many factors at play, including rising costs, declining well productivity, and the movement of production to less prolific acreage and more marginal wells.

Let me also comment briefly on the 2018 outlook, where demand growth forecasts made by various institutions range between 1.4 and 1.6 million bpd.  This compares to US crude oil production growth of 600,000 barrels per day predicted by the US Energy Information Administration.  This means that after accounting for shale growth there will be a net of between 800,000 and one million barrels per day of demand to be met by other producers.

In summary, ladies and gentlemen, let me stress that the historical collaboration and cohesion among the OPEC and non-OPEC members remains exemplary in spite of the headwinds we are facing, and our united stance amid a complex market environment will continue to play the most important role in shaping market sentiment.

Today, all the key variables—the global economy, demand growth, marginal supply trends, supply-demand balances, and inventories—are improving, and we look forward to healthier market conditions in the weeks and months to come.  However, market dynamics are complex and are constantly changing and developing.  Therefore, we should continue to monitor the situation closely and jointly take further actions as appropriate to ensure a balanced market.

Finally, let me reiterate that both OPEC members and non-OPEC nations have acted in unison, and for that I would like to give special credit to the JMMC led by our able co-chairs and to my colleagues on the committee.  And once more, thanks to His Excellency Minister Novak for hosting us today.

Thank you for your attention.

HE Khalid A. Al-Falih, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, and President of the OPEC Conference

HE Khalid A. Al-Falih, Saudi Arabia's Minister of Energy, Industry and Mineral Resources, and President of the OPEC Conference