Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 179th Meeting of the OPEC Conference, 6 June 2020, via videoconference.
Since the OPEC Ministerial Conference last met on March 5, just over three months ago, the world has been turned upside down.
It has been an unprecedented 100 days. The COVID-19 pandemic has pervaded almost every aspect of our daily lives, with widespread lockdowns, businesses shuttered in, economies in distress and most people confined to travel in their local area.
Every economic sector was impacted by this fast moving, but silent invader. This has been clearly evident in global oil. Every producer has been impacted; no-one has immunity.
To put the scale of the transformation in some context we only need to look at the change in expected economic and oil demand growth.
Expected 2020 global GDP growth has fallen dramatically from a positive 2.8% at our March 5 meeting to a negative 3.4% today.
Expected 2020 global oil demand growth has dropped from a positive 0.5 mb/d at our March meeting, to an astounding negative 9.1 mb/d today.
To help counter this, OPEC, and our partners in the 'Declaration of Cooperation' (DoC) agreed at two Extraordinary Meetings on April 9 and 12 to new voluntary production adjustments: 9.7 mb/d, in May and June 2020; 7.7mb/d from 1 July 2020 to 31 December 2020; and 5.8 mb/d from 1 January 2021 to 30 April 2022.
These are the largest and longest in the history of OPEC, OPEC+ and the oil industry, with the focus on rebalancing and stabilizing the market, in the interests of both producers and consumers. This unparalleled commitment, and the unity and courage for the common cause of oil market stability from OPEC, and non-OPEC participants in the DoC has been widely welcomed.
Additionally, we have seen welcome additional adjustments from Saudi Arabia (1 mb/d); the UAE (100 tb/d); a Kuwait (80 tb/d); and Oman (10-15 tb/d). This forthright leadership should be lauded. We have also seen announcements of voluntary adjustments from several countries, such as Norway and Canada, and oil company statements revising downward their production plans and shutting in supply.
This dramatic change in non-OPEC supply growth is also clearly exhibited by the numbers. At our March meeting, non-OPEC liquids production in 2020 was forecast to grow by 2.2 mb/d, whereas now the forecast is for a huge decline of 3.5 mb/d.
The DoC had to act in a decisive manner, otherwise the oversupply would have added more than a billion barrels to global crude oil stocks, and quickly exhausted the available global crude oil storage capacity.
In this regard, it is important to recall that we saw a peak in OECD commercial stocks of 403 million barrels above the five-year average in July 2016, which took us three years to clear.
The importance of this was made very clear in April; a month that may go down as the worst in the history of the oil industry.
The COVID-19 pandemic was at its height and the oil market was hemorrhaging; demand was in freefall and global storage capacity was filling quickly.
The nadir of this was April 20, or what some have called 'Bloody Monday', when the WTI May contract tumbled by more than $50, ending the day at an incredible negative US$37.63/b, the first ever plunge into negative territory. In other words, sellers were paying buyers!
It was a visceral moment for the market. To put the abrupt nature of this slide into some context - WTI broke below $1 less than a half hour before the settlement, but in those final 30 minutes it dropped another $38!
This sent shockwaves through the industry, with many analysts calling tank tops for storage facilities in the coming weeks.
Since the start of the new DoC production adjustments on May 1, however, we have seen a distinct change in sentiment. Slowly, but surely, we are seeing tentative indications of a recovery, and given the amount of production that has been adjusted, voluntary or involuntary, there is now no signs of storage facilities reaching capacity.
We do hope that the worst is behind us. We have turned a corner, but the numbers underscore that we need to keep our foot on the pedal, and hence firmly on the steering wheel. We cannot get complacent and believe that our work is done.
Global oil demand is still expected to shrink by more than 17 mb/d in the 2Q20, and while the level is expected to ease in the second half of the year, for the whole of 2020, the contraction is still over 9 mb/d.
The decision taken in April was a clear demonstration of the commitment, motivation and dedication of OPEC and our valuable partners in the DoC, led by the Russian Federation, in terms of looking to aid the short-term and providing a platform for recovery and growth in the coming months and years. We now need to ensure we all carry this progress forward, with 100% conformity from all participants, and further reinforce the commitment we have shown in recent months.
We cannot believe that the path ahead will be flat and straight; it will no doubt be bumpy and circuitous.
But we need to seize the moment, work with a rising tide of hope, and ensure our objectives are met. In this, I recall a line from William Shakespeare's Julius Caesar:
'There is a tide in the affairs of men, which taken at the flood, leads on to fortune. Omitted, all the voyage of their life is bound in shallows and in miseries. On such a full sea are we now afloat. And we must take the current when it serves, or lose our ventures.'
We need to lead the way at this OPEC Ministerial Conference and be responsive and proactive as we look to help further rebalance fundamentals and try and reduce volatility in the oil market.
The commitment that OPEC Member Countries have shown thus far, as well as all participants in the DoC, has been rightly welcomed. Let us keep this momentum.
OPEC - Organization of the Petroleum Exporting Countries published this content on 06 June 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 June 2020 18:50:02 UTC