Opening remarks by OPEC Secretary General

Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 7th Joint IEA-IEF-OPEC Workshop on the Interactions between Physical and Financial Energy Markets, 22 October 2020, via videoconference.

Distinguished experts – IEA, IEF and OPEC colleagues:

Good afternoon, or good morning to those joining us from the UK or from the other side of the Atlantic.

I would like to thank everyone for joining us via videoconference for the Seventh Joint IEA-IEF-OPEC Workshop on the Interactions between Physical and Financial Energy Markets.

It is a challenging time for us all; an unprecedented time for us all.  The only way we are able to hold events like this is via videoconference, but I believe the last eight months has shown how adaptable we have become and how we have embraced this new way of working.

We continue to interact; we continue to do business; and as OPEC its partners in the Declaration of Cooperation (DoC) have shown this year, we continue to make decisions to help achieve balance and sustainable stability in the oil market.

We would like to thank our co-organizers, the IEA and the IEF, for their great efforts in making this event possible.

It a great pleasure to welcome to this event for the first time, the new Secretary General of the IEF, Joseph McMonigle, who officially assumed his position on 1 July 2020.  Mr. McMonigle is well known to many of us with over 20 years of experience working on energy issues in the public and private sectors, and also previously a regular at OPEC Ministerial Meetings. 

We wish you the very best in your role and we are sure you will have great success in strengthening and extending the producer-consumer dialogue, which has never been more important than during the dark days we have experienced in 2020 as a result of the COVID-19 pandemic.

And I would also like to thank our colleague from the IEA, Keisuke Sadamori, Director of the Office for Energy Markets and Security, who is today heading the IEA’s delegation.  Mr Sadamori took up his position in October 2012, have previously served in the Cabinet of the Prime Minister of Japan and in the Ministry of Economy, Trade and Industry (METI) of Japan.

Today’s event represents one of three regular dialogues held under the IEA-IEF-OPEC joint work programme, which was established and endorsed by Energy Ministers ten years ago at the 12th International Energy Forum in Cancún, Mexico, in 2010.  The other dialogues are the Symposium on Energy Outlooks and the Symposium on Gas and Coal Market Outlooks.

These events have attracted participation at the highest levels, as is apparent today, and they have also been commended at the highest levels, such as through the G20.  In fact, many of the topics we will discuss today, were on the agenda and reflected in the communique from the most recent G20 Energy Ministerial Meeting, held at the end of September 2020 under the Presidency of OPEC Member, Saudi Arabia.

 These efforts are also complemented by the excellent work that the IEF, the IEA and OPEC contribute to the JODI initiative, which has been essential to enhancing global energy data transparency.

These collective efforts underscore the tangible benefits that the strengthening of the producer-consumer dialogue has brought to the market, and we look forward to deepening and enriching our engagement with further close collaboration.

The importance of this dialogue has been brought home to all of us in 2020.   The effects of the COVID-19 pandemic on the oil market have been unparalleled. 

Large-scale oil demand destruction, at a level never witnessed before; global storage capacity shrinking fast; a massive supply and demand imbalance, that required the DoC to embark on bold and decisive production adjustments, the largest and longest in the history of the industry; and, production being shut in elsewhere.

Some have dubbed the month of April as ‘Black April’ and there is one specific date, April the 20th, that will be forever remembered for the collapse in NYMEX WTI.  On this day, the price of WTI in the futures market plunged by $56/b to minus-$37.6/b, the first ever plunge into negative territory.  In other words, sellers were paying buyers!

The drop came one day before the expiry of the front-month May WTI contract, amid low liquidity; a delivery problem for physical May crude at the Cushing hub with traders rushing to reserve storage capacity given expectations that tanks would reach maximum capacity in the coming weeks; and with some speculators still holding open contracts scrambling to exit long positions. 

This all created a severe squeeze on the market.  It has been described as ‘extraordinary’, ‘scary’ and ‘visceral’.  WTI broke below $1, less than a 30 minutes before the settlement, but in those final 30 minutes it dropped another $38!

It was clear that actions taken by the DoC on April the 12th stopped short the race to zero dollar oil, and have been pivotal in reducing volatility and bringing back some semblance of stability to the market.

It dramatically underscored the relationship between physical and financial markets, and I am sure it will be much discussed today.

Today, we have three sessions in our programme, all focused on the impact of COVID-19, but each with a different slant.

Out first session is on the ‘Impact of COVID-19 on the global economy and commodity markets’.  The focus is on providing a high-level overview of how the knock-on impacts of the pandemic has ripped through the global economy and commodity markets: Which countries and what industries have been impacted most?  What has been the effect on global trade?  And what are the prospects for recovery in the rest of 2020 and into 2021?

The second session considers the ‘Global oil industry investment patterns and dynamics in light of COVID-19 and the energy transition’.  This is an extremely important topic given that the current crisis has evidently been a serious blow to investment.  The market collapse has already pushed some petroleum companies over the edge and poses an existential threat to others, on top of the fact that we were already seeing a shift in interest towards oil by some institutional investors.

We now expect oil industry capital expenditure in non-OPEC countries to plummet by 23% y-o-y in 2020, to about half the $741 billion record set in 2014.  This puts highly skilled jobs, innovation and advances in efficiency at risk at a time when the industry – and the global economy – need them the most. To put this in a longer term context, in our recently released World Oil Outlook 2020, it is noted that the global oil sector will need cumulative investment of $12.6 trillion in the upstream, midstream and downstream through to 2045.

Moreover, we need to better understand the potential dynamics of the energy transition, where and what investment is required and what each energy can provide, while balancing the needs of people in relation to their social welfare, the economy and the environment.

The final session will look at ‘ETFs and the futures markets: lessons from recent oil market volatility’.  This will examine the latest developments in various regional crude exchanges; explore the increasing involvement of exchange-traded funds in setting the crude futures benchmarks; and highlight how these have recently contributed to rising price volatility and the recent significant disconnect between the futures and physical benchmarks seen during COVID-19, most dramatically on April the 20th this year.

Finally, a gentle reminder that today’s discussions will be held under the Chatham House rule.  In terms of structure, each session will begin with a few introductory remarks from our excellent moderators and then presentations from our discussion leaders. The floor, or as we see today, the screen, will then be open to allow for an interactive discussion amongst all participants.

It has been an extremely challenging 2020, but allow me to leave you with some positivity and a line from the great British poet Alfred Lord Tennyson as we look to 2021.

“Hope smiles from the threshold of the year to come, whispering ‘it will be happier’…” 

I would now like to invite my distinguished friends and fellow organizers from the IEF and IEA to say a few words, starting with the Secretary General of the International Energy Forum, Joseph McMonigle.

Thank you.

HE Mohammad Sanusi Barkindo, OPEC Secretary General

HE Mohammad Sanusi Barkindo, OPEC Secretary General