On the right track

OPEC Bulletin Commentary May-July 2017

After several months of historical decisions and unwavering dedication by OPEC Ministers and their non-OPEC counterparts to the ‘Declaration of Cooperation’, participants once again showed the world their mettle at their recent ministerial meetings in Vienna, continuing to lead global efforts to stabilize the world’s oil market.

The main outcome of the 172nd Meeting of the Conference and the 2nd OPEC and non-OPEC Producing Countries’ Ministerial Meeting, which took place at the OPEC headquarters on May 25, 2017, was an extension of production adjustments for a further period of nine months, with effect from July 1, 2017. The decision once again underscored OPEC’s importance as a positive force in the market, alongside participating non-OPEC countries, to the benefit of all producers, consumers, the industry and the global economy.

The conclusion was reached after considering various internal reports, as well as the recommendations made by the Joint Ministerial Monitoring Committee (JMMC), supported by the Joint Technical Committee (JTC).

These two bodies had been set up last year to monitor conformity to the original production adjustments made by 13 OPEC and 11 non-OPEC producing nations, which resulted from the 171st OPEC Ministerial Conference on November 30, 2016, and the unprecedented OPEC and non-OPEC ‘Declaration of Cooperation’ on December 10, 2016.

The very high level of commitment on behalf of OPEC Members and participating non-OPEC nations has been reflected in the unprecedented conformity levels to last year’s adjustment decision, which has increased month-on-month during 2017. In May 2017, the combined conformity level reached 106 per cent, an increase of four percentage points over the previous month.

What could be a clearer demonstration of the power and efficacy of dialogue and cooperation?

There have evidently been many sceptics throughout this process of consultations and negotiations, many from observers who did not believe that OPEC Members could find unity among themselves. There were also many who were doubtful that any kind of unanimity could be found with non-OPEC producers. And there were also many who believed that the ‘Declaration of Cooperation’ would not be fulfilled. The developments of the past six months have surely proven them wrong.

In fact, the actions of the Organization and its Member Countries constitute what could be called ‘vintage OPEC’. They have shown the courage, diligence and spirit of compromise that have always been hallmarks of the Organization — and the world today continues to look to OPEC to carry on with its good work.

It is worth underscoring the fact that the ‘Declaration of Cooperation’ is unparalleled in the history of the oil industry. However, given the nature and severity of the downturn of the last several years, such a concerted, collective effort was required. No one could have acted alone — and the continuation of such a broad commitment has been necessary to ensure that the desired objectives are kept in focus and finally reached.

Although the rebalancing of the market has taken longer than originally envisaged at the end of 2016, the expectations are that we are well on our way to a return to more desirable market conditions. Still, all participating countries must ensure that they continue to carry on as they have been and maintain their commitments and conformity to the adjustments.

It has been evident that the slower than expected rebalancing process in the first half of this year has been due to the regular early year seasonal changes that can soften the market, as well as to a sudden pick-up in US tight oil production. But despite this and other sources of uncertainty in recent months, we believe the groundwork has been laid for stronger stabilization and a more consolidated recovery during the second half of the year.

In short, we are still in the midst of a broad rebalancing process and, consequently, there are still important issues which need to be addressed. We are not entirely out of the woods, and the market environment remains a challenging one for producers and investors.

In addition, the discussions and consultations undertaken over the past year have opened up an exciting new chapter in our Organization’s interactions and relations with other market stakeholders — non-OPEC nations, shale oil producers, financial actors, consumers and the broader international community.

Such a spirit of dialogue among energy stakeholders may have important, long-lasting reverberations. It may even serve to help protect the market from severe price cycles in the future.

Another outcome of this entire process has been an upsurge in optimism among oil majors and national oil companies, despite the lingering short-term market challenges. This has been demonstrated by an increase in recent E&P agreements and deals and a rise in investments following two years of decline. Ingenuity, innovation and investments are vital to the long-term future of this vital global industry.

All things said, we believe we remain on the right path. The enthusiasm and commitment shown by OPEC and participating non-OPEC oil producing countries in the rebalancing process is a good omen for the future of the market and global economic stability.

OPEC Bulletin May-July 2017

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