A model of collaboration and crisis management

OPEC Bulletin Commentary – February-March 2021

One year after the coronavirus pandemic ushered in one of the greatest challenges of modern times, the global oil market is enjoying relative stability. Cautious optimism has replaced the pervasive gloom of a year earlier.

The 14th OPEC and non-OPEC Ministerial Meeting (ONOMM), held on March 4, agreed to maintain most of the current production adjustments in April. Saudi Arabia also extended its supplemental 1 million b/d adjustment for a third month. The decisions reflect the vigilant, forward-looking approach taken by the ‘Declaration of Cooperation’ (DoC) participating countries as part of their ongoing work to support sustainable oil market stability.

The market has come a long way in a remarkably short time. Only a year ago, the increasingly sombre news about COVID-19 and its impact on economies around the world crushed oil demand and stockpiles grew. The oil market faced an existential crisis. Concerted action was needed.

With the benefit of hindsight, we now know that April 12, 2020, marked a crucial milestone in addressing the looming oil market imbalance. On that day, the OPEC and non-OPEC countries in the DoC met on screen to undertake the boldest action since their collaboration began in December 2016.

Backed by international support at the highest levels, the DoC producers agreed to the largest and longest oil production adjustments in history. The initial adjustments accounted for nearly ten per cent of global demand. Put in a historical context, this amounted to more than the combined production of the five OPEC Founder Members when the Organization was formally established in 1960.

The stage for action was already being set by the DoC countries at meetings three days earlier, on April 9, with seven additional oil-producing nations and other observers in attendance. The next day, April 10, the G20 Energy Ministers, meeting in an extraordinary session under Saudi Arabia’s Presidency of the group, lent influential support to the DoC by agreeing “to use all available policy tools to maintain market stability” and to “ensure that the energy sector continues to make a full, effective contribution to overcoming COVID-19 and powering the subsequent global recovery.”

“There is a huge historic challenge before us, but I firmly believe that is not insurmountable if we work together in solidarity and courage for the common cause of market stability,” Mohammad Sanusi Barkindo, OPEC Secretary General, told the G20 Energy Ministers at the time.

Viewed from today’s perspective, Barkindo’s words were prophetic. In the ensuing days, weeks and months, world leaders, oil majors and energy stakeholders grew increasingly confident that the DoC would help pilot the oil market through the pandemic crisis.

The participating countries lived up to expectations, working side-by-side to help staunch the oil market haemorrhage, create stability, and maintain a steady flow of energy to the global economy. Throughout this process, the DoC has kept the channels of communication open to both producing and consuming countries, which share a common interest in market stability.

Researchers will without doubt be analysing the pandemic for years to come in search of ways to mitigate societal and economic harm in future crises. At first glance, there are some very important lessons to be learnt from OPEC and the DoC, including:

  • OPEC’s strong and trusted relationships at the multilateral level and with global energy stakeholders, including the leading consuming nations, underpinned the oil market stabilization efforts and helped reassure stakeholders;
  • Strengthened monitoring and monthly meetings of the DoC’s Joint Technical Committee (JTC) and Joint Ministerial Monitoring Committee (JMMC) provided crucial firepower to support strategic decision-making;
  • Timely, relevant and accurate data and information sharing, and strengthened cooperation with established secondary sources, aided the flow of information needed to quickly assess the market and keep pace with rapidly changing events.

Other supporting factors — strong overall conformity to the production adjustments; additional voluntary adjustments that bolstered the collective efforts; and an innovative compensation plan for overproduction — further strengthened the DoC’s capacity to support the oil market’s resilience and the economic recovery.

The battle against COVID-19 is still raging, and mutations have outflanked some of the best defences. There is understandable concern about the unevenness of progress on inoculating the world and restoring its economic potential. Moreover, there is a risk that some economic recovery initiatives could reshape the energy balance without giving enough consideration to long-term stability and security of supply. Given the uncertainties, collaboration is as vital today as it was a year ago.

Cooperation requires a lot of hard work and invariably entails compromises, even in the best of times. Reflecting on the events since April 12, 2020, the efforts of OPEC and the DoC stand as a model of what can achieved through collaboration. The swift and concerted actions of a few, acting in the interests of the many, have been instrumental in supporting a commodity that is indispensable to the recovery and future energy needs.

One year on, the significance of these efforts is becoming clearer.

OPEC Bulletin February-March 2021

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