OPEC President says outcome of oil market rebalancing impressive

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The President of the OPEC Conference and Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, Khalid A. Al-Falih, has commended the achievement of the organization in trying to maintain the global oil price through production cut.

Speaking at the 6th meeting of the Joint Ministerial Monitoring Committee (JMMC), yesterday in Vienna, Austria, he said: “I would first like to recognize the dedication and leadership provided to the Monitoring Committee by His Excellency Issam A. Almarzooq, Minister of Oil and Electricity of Kuwait, and His Excellency Alexander Novak, Minister of Energy of the Russian Federation.

‘This Committee is central to assessing the impact of our efforts to rebalance and stabilize the oil market and ascertaining the necessity and extent of future action.

“It has now been nearly a year since we reached the production agreement, and the results have been gratifying.  The compliance results speak for themselves and it would not have been possible without strong leadership and guidance.

“We have reached an average compliance of 102 percent over the first nine months, and in September that figure reached 120 per cent.  This level of engagement and commitment has had a positive effect on market confidence and stability.

“Leading indicators show that the destocking process is well underway, as all regions of the world have seen a drawdown that has accelerated in recent months.  For the first time in the course of this cycle, OECD storage levels have fallen to 140 million barrels above the rolling five-year industry average from a record 330 million barrels last year.

“For these gratifying results, I want to express my appreciation to the Joint Ministerial Monitoring Committee and the Joint Technical Committee, as well as to the OPEC Secretariat.

“Let me take a moment to talk in retrospect about the importance of the Committee and its work. As important as it is to reach agreements, it is equally critical to turn them into action and maximize their impact on the market.  In the absence of actual results, the agreements would in fact generate negative returns as they would adversely impact our reputation.

“So, it is essential that we put the right mechanisms in place to maximize the impact of those agreements.  Therefore, I’m glad that we decided early on to set up the correct organizational structure, including the JMMC and the Joint Technical Committee whose hard work has helped guide our respective countries and oil ministries in their complex decision-making over these past months.  We have achieved solid results to date, which would not have been possible without each organization in the structure effectively discharging its responsibilities.

“But we cannot afford to be complacent.  In order to continue meeting our shared goals, a good deal more hard work and commitment is essential.

“In terms of the process, the committee’s analysis, outlook and recommendations will be used as a basis for deliberations among our Ministers in tomorrow’s meeting, who will then make critical decisions affecting our nations and our economies, the wider oil industry, and in fact the entire global economy.  They are relying on you for accurate information, insightful analysis and sound guidance.

“I would like to stress that in the coming months our work will continue. We will need the full commitment of all countries.  While I want to congratulate and thank the over-performing members for their dedication, I want to urge those few under-performing countries to catch up. To succeed in the future, it is crucial that we have everyone on board, and in our shared mutual interest I’m confident that I can count on your support.”

“In his remarks, Almarzooq said: “It is my pleasure to welcome you all to the OPEC Secretariat for the 6th Meeting of the Joint Ministerial Monitoring Committee (JMMC). We are nearing the one-year anniversary of the implementation of the historic ‘Declaration of Cooperation’, which saw 24 participating OPEC and non-OPEC producing nations come together to help restore order and predictability to the global oil market after one of the worst price declines in history.

“This historic and courageous display of cooperation was the result of tireless consultations, high levels of commitment and a great deal of compromise and flexibility. The process has also required a great deal of patience and perseverance, considering the magnitude and complexity of re-establishing balance to the global oil market.

“Here, allow me to express my deep appreciation to each and every OPEC Member Country and participating non-OPEC producer, who made great sacrifices, worked the extra hours and went the extra mile to help us get to where we are today. With your continued dedication and determination, I am confident we will reach the mountain top together.

“I would also like to recognize my esteemed Alternate Chairman on this Committee, His Excellency Alexander Novak, Minister of Energy of the Russian Federation, as well as the President of the Conference, His Excellency Khalid A. Al-Falih and the OPEC Secretary General, Mohammad SanusiBarkindo. Their leadership and expert input at every juncture and milestone of this historic process have been instrumental to the ongoing success of the ‘Declaration of Cooperation’.

“Another key ingredient in the progress made thus far has been the high-quality input we receive every month from the Joint Technical Committee (JTC), in coordination with the OPEC Secretariat. I know we can count on you to continue operating in the highly professional manner we have come to appreciate and value over the past year.

“Since our last meeting in September, the oil market has continued to strengthen and is evidently on the path to rebalancing.

The destocking process, both onshore and offshore, has continued at an accelerated pace in recent months. From May to October, the Organisation for Economic Cooperation and Development (OECD) stock overhang fell by around 140 million barrels to stand at 140 million barrels above the five-year average in October. Looking at the first ten months of the ‘Declaration of Cooperation’ there has been a decline of around 200 million barrels.

“Additionally, crude in floating storage has come down by an estimated 50 million barrels since June, with the help of a narrowing contango, and then Brent, WTI and Dubai flipping into backwardation for the first time since 2014.

“As far as demand goes, we have seen global oil demand growth strengthening. In the December 2016 Monthly Oil Market Report (MOMR), we saw global oil demand growth for 2017 at a level of 1.15 mb/d. This has been revised up considerably to now stand at 1.5 million barrels per day (mbpd). For 2018, this encouraging dynamic is set to continue with the same forecast of 1.5 mbpd.

“Looking at the global economy, the forecast is bullish, as the recovery has picked up steam this year. We are currently forecasting growth this year of 3.7 per cent, supported by positive momentum and a possible tax reform in the US, improving global trade, continued positive outlooks for the Eurozone and, to some extent, Japan, as well as robust growth in China and India. Improved outlooks for Russia and Brazil are also contributing factors. In 2018, this positive trend is expected to continue with a further robust growth forecast of 3.7 per cent.

“This positive outlook has clearly been supported by the unprecedented conformity levels to the production adjustments in the ‘Declaration of Cooperation’. These consistently high levels, at or above 100 per cent, have quieted the voices of naysayers in the industry who initially expressed doubts regarding the commitment of the 24 participating OPEC and non-OPEC producing countries to bring stability back to the oil market.

“Let us not take this positive momentum as a reason to sit back and relax. Rather, let us be energized by the progress we have made, and continue to push onward until we reach our final goal.

“We are clearly on the right path, but there is still work to be done to bring the remaining inventories down to the latest five-year average, at which point we can say we have reached our objectives of a balanced and stable global oil market.

“Thus, today, we will take stock of the recent oil market developments, assess conformity levels, both individually and collectively, and establish what more can be done in the months ahead to improve these levels in order to reach our common goal.

“Here, I think it is pertinent to underline the fact that some participating producing countries continue to over-perform, and I think it is appropriate to recognize their extraordinary efforts. This is also a reminder of how important it is for each country to reach its own conformity goals. Each delegation should be driven to achieve full and timely conformity.

“Reflecting back on the first year of implementation, the ‘Declaration of Cooperation’ has established the requisite structure and foundation for the sustainable stability we all seek. It will be essential, going forward, that this platform be solidified, institutionalized and expanded.

“Let us not forget that our every move is being scrutinized by the international community. It is thus crucial that we maintain a laser focus on our goal of achieving a rebalanced global oil market. This will boost urgently needed industry investment and fuel future economic growth and prosperity around the world.”

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