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OPEC bulletin 10/17

F o r u m

At varying times through history, the driving factor

has been related to demand, supply or a combination of

both. Speculative financial activity has also played an

increasing impactful role in recent years.

Recent price crash

The latest cycle has been supply side in nature, and is

considered one of the worst price cycles in history as

the world witnessed the OPEC Reference Basket price

fall by an extraordinary 80 per cent between June 2014

and January 2016.

“Despite some existing parallels with previous cycles,

the magnitude of the price drop in the current cycle is the

highest of all cycles in real terms,” the Secretary General

explained. “In addition, the recent drop in oil prices has

been considerably sharper than the decline in prices for

other commodities — which is in stark contrast to, for

example, the oil price collapse of 1985-1986 when all

commodity prices saw a steep decline.”

He pointed out that extreme prices have resulted in

unwanted volatility, which are detrimental to all industry

stakeholders’ interests.

“Regardless of what the exact nature of the drivers

is, in all cases extreme prices created boom and bust

cycles. These have often had quite negative implications

and have contributed to the creation of extremely vol-

atile price environments, which is not in the interest of

either producers or consumers,” he stated. “We need

to remember that low oil prices are bad for producers

today and lead to situations that are bad for consum-

ers tomorrow. And high oil prices are bad for consumers

today and lead to situations that are bad for producers


Impact on industry

He said that the current downward price cycle had

resulted not only in a vast number of lost jobs and the

discontinuation of crucial long-term projects and invest-

ment, but also in increasing stock builds.

“The recent price crash led to nearly $1 trillion in

investments being frozen or discontinued, and many

thousands of jobs were lost,” he pointed out. “It also

choked off investments, with exploration and production

spending falling by a massive 27 per cent in both 2015

and 2016. Moreover, it was a period that sawmajor stock

builds, with the OECD stock overhang increasing to a level

of 380 million barrels above the five-year average at the

end of July 2016.”

Landmark cooperation

The direness of the situation required a response, and

OPEC embarked on a whirlwind of consultations among

its Member Countries and also with non-OPEC producers

in order seek ways and means to help bring order and

stability back to the global oil market.

“These consultations eventually led to the historic

production adjustment decisions reached by OPEC and

participating non-OPEC producers at the end of 2016 and

then extended in May 2017, for a further period of nine

months till the end of March 2018,” he explained. “This

has been a major commitment from 24 producing coun-

tries as we look to see the return of sustainable market


This unprecedented cooperation helped prevent what

may have ended up becoming a crisis in the global oil

market had no action been taken.

“There was then, and continues to be now, global

recognition that without such adjustments, the market

would have experienced further extreme volatility, which

would have had far-reaching negative consequences for

producers, consumers, investors, the industry, and the

global economy at large,” he stated.

Restoring investment

The market is starting to show signs of rebalancing, but

there is still work to be done to reinstate the required

investment levels to the industry.

“While investments are expected to pick up slightly

this year and in 2018, it is clear that this is not any-

where close to past levels and it is more evident in

short-cycle, rather than long-cycle projects, which are

the industry’s baseload,” he said. “Additionally, we

should remember that the actual volume of conven-

tional oil discovered across the globe has halved over

the past four years, compared to the previous four-year


This is a major concern especially in terms of secur-

ing future supply to ensure that rising demand can be

satisfied in the long term.

“As we have all learned from previous price cycles,