Before I shed more light on these accomplishments and review with you the general market conditions, let me welcome the two newest members of the Board, Mr Fernand Epigat of Gabon and Mr Mohammed Saadoon Mohsin of Iraq.
We look forward to your constructive contributions to this Board.
Esteemed Members of the Board, colleagues,
In December, our Member Countries – together with our partners in the ‘Declaration of Cooperation’ – proactively adjusted production by 500,000 b/d to a then-record 1.7 mb/d. This decision demonstrated the resolve of all participating countries to ensure market stability and predictability going into a new year – and indeed a new decade.
But no one could have predicted the fast-moving situation that would transpire with COVID-19. In a very short time, a wave of shock and mounting uncertainty swept aside the hopeful start to the year and the new decade.
At the 178th (Extraordinary) Meeting of the OPEC Conference on March 5th and 6th, the full market impact of COVID-19 was unclear. In fact, the World Health Organization (WHO) did not declare a pandemic until March 11th.
Little did we know at the time that the epicentre of COVID-19 would make a dramatic shift from one continent to another, extending the economic destruction and oil market meltdown.
Over the past three months, we have experienced an economic and oil market collapse without precedent. Even the most pessimistic outlooks for 2020 that were discussed during the 132nd Meeting of this Board last November look a world away now. We are on a completely different page, given the economic and market realities we face today in the face of the tragic COVID-19 pandemic.
Today, the fight against COVID-19 is far from over. We still do not know what the future holds. With well over 6 million cases worldwide, and more than 370,000 lives lost so far, the risks of a sharper downturn remain until we have a safe and effective means to protect against this deadly virus.
Let me briefly highlight a few points of comparison using data from our last meeting and the latest assessments we have before us today.
In November, we projected global economic growth of 3.0% in 2020. Notably, there was a great degree of positivity among attendees at the World Economic Forum Meeting in Davos, which took place January 21st-24th 2020. Looking forward, various leaders and commentators were optimistic regarding the prospects for the global economy in 2020. How times have changed!
We now expect a severe recession with the world economy shrinking by 3.4% this year, following global economic growth of 2.9% in 2019. All our Member Countries are heading into recession.
Subject to further lockdown measures and health-related developments, the risk to the global forecast remains skewed to the downside.
Seven months ago, we expected world oil demand to grow by 1.08 mb/d in 2020. Our latest projection shows a historic decline of nearly 9.1 mb/d this year. The worst impact is likely to be in the second quarter, mostly in OECD Americas and Europe, with transportation and industrial fuels affected the most. Global demand for the year is likely to be around 90.6 mb/d – with higher consumption expected in 2H20 than in 1H20.
Furthermore, the current crisis is a serious blow to investment. The market collapse has already pushed petroleum companies over the edge and poses an existential threat to others in the oil industry.
We now expect CAPEX 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.
For our Member Countries, the current circumstances and financial setback will sharply curtail efforts to diversify, finance technological innovation, and invest in the energy transition.
As market conditions continued to deteriorate at the end of 1Q20 and the start of the second quarter, it became clear that urgent action was needed. Key stakeholders from around the world were lining up behind the DoC countries to support proactive, pre-emptive and decisive action to prevent a total market meltdown.
Between April 9th and 12th, we held two Extraordinary Ministerial Meetings of the OPEC and non-OPEC countries in the DoC. In addition, we participated in the Extraordinary G20 Energy Ministers Meeting (April 10th) under the able chairmanship of the Kingdom of Saudi Arabia, which holds the presidency of the G20 this year.
Action was needed, and act we did. The production adjustments agreed at the April 2020 meetings, totalling 9.7 mb/d for two months, followed by phased reductions in the adjustment levels over a further 22 months, were unparalleled in scope and duration. The two-year period for output adjustments demonstrated the full commitment of all stakeholders to achieve common goals.
Some OPEC Member Countries – led by Saudi Arabia, the United Arab Emirates and Kuwait, along with Oman – have gone further with additional voluntary adjustments of around 1.2 mb/d. These contributions helped to reduce the risk of tank tops and offered fresh assurance and confidence to the market.
Another pivotal outcome of the April meetings has been the encouragement and outpouring of support the DoC participants have received. This support came from the very highest levels of government, and from the very largest global oil producers. The largest producers acknowledged their mutual interdependence, and the benefits of working together to return confidence to the global oil market.
In addition, we have seen commitments from independent producers, and engagement from the G20 and other international bodies, on the need for proactive and coordinated action to stabilize the world’s most important energy source. There are stakeholders in Canada, Norway, Colombia, Brazil and many other producing nations who have added their support to broader collaboration to stave off further erosion of the market.
Following the April DoC meetings, we organized and hosted a series of virtual round-table briefings with select energy policymakers and experts from international institutions, consulting firms, the oil industry, the financial community and think tanks from around the world. These roundtables also featured the European Commission; and oil consuming countries, such as China and India.
The discussions provided a productive and timely platform to exchange views on the historic outcomes of the Ministerial Meetings, the unparalleled economic and oil market conditions resulting from COVID-19, and the public health measures taken to control the pandemic.
It is important to note that these roundtable briefings began during ‘Black April’, a month of strikingly unprecedented developments and extreme volatility. During the month, we witnessed the largest collapse in global oil demand of around 24 to 26 mb/d. And, of course, there was a day that shook the market to its foundations, when on April 20th the price of NYMEX 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 “dramatic”, “scary” and “visceral”. WTI broke below $1, less than a half hour before the settlement, but in those final 30 minutes it dropped another $38!
The actions taken by OPEC+ in April stopped short the race to zero dollar oil. The decision taken by our Members, and our partners in the DoC, has been pivotal in reducing volatility and bringing back some semblance of stability to the market.
Holding the recent energy roundtables during such an exceptional time has proven to be of enormous strategic importance by drawing on the expertise of leading analysts, scholars and economists. They have reinforced OPEC’s image as a leading force in achieving a stable and secure energy supply for the world. They have demonstrated again our desire to maintain the momentum in achieving broad and inclusive dialogue and cooperation. They have provided a deeper understanding of the market and conditions affecting it.
It was further noted during these productive discussions that the rebalancing process may be longer than anticipated under the prevailing uncertainties and downside risks, and given that global inventories appear to be continuing to build, albeit at a much lower rate than the record pace of late March and April.
The pace of the global economic rebound – particularly given the very uncertain economic paths of the world’s two largest economies, the US and China – as well as a recovery in global trade, will be central to the oil market’s revival.
It is clear that the post-pandemic world will be much different and require thorough and forward-looking reflections. It will take time for a new equilibrium to emerge, not only in terms of a balanced market, but among producing countries as well.
No individual stakeholder can have all the answers. It is only by reaching out and deepening the dialogue between reputable institutions that we can provide a better and broader sense of the rapidly evolving energy landscape.
We continue to work closely with the International Energy Agency – including regular consultations – and International Energy Forum to ensure open lines of communication between producers and consumers. Together, we collaborate to ensure access to accurate, timely and transparent data about the markets.
Let me also convey my gratitude to all the OPEC Member Countries for their support, and their solidarity, throughout this unparalleled international emergency. Moreover, it is a moment to pay our greatest respects to the governments of our Member Countries on their extraordinary efforts to contain the pandemic that has enveloped the entire humanity.
The challenges created by the COVID-19 tragedy will require special attention to ensure that the OPEC Conference has access to quality and timely data, market information, and fact-based assessments on current and projected conditions.
In addition, it is essential that the Joint Ministerial Monitoring Committee of the DoC is equipped with the latest and best information so it can make apt and timely recommendations under rapidly changing circumstances. Strategic decisions can only be made when underpinned by up-to-date and in-depth analysis. Indeed, the link between transparent data and better predictability, and a secure and sustainable energy supply, will grow in importance in the months and years to come.
As you are aware, the deliberations and output from these Board meetings provide the basis upon which key decisions are made by the Ministerial Conference. We are constantly striving to improve our research and deepen our analysis to provide the best possible input to this Board.
I would like to thank the OPEC Secretariat Staff for their dedication and forbearance throughout this stressful emergency. I applaud all the work they put into ensuring that this and all the important business of the Organization takes place without interruption and in compliance with the Austrian government’s containment regulations.
Work is in earnest to finalise the release of the 55th edition of the Annual Statistical Bulletin and the 14th edition of the World Oil Outlook in November.
This year’s WOO extends the outlook by another five years, to 2045. It will feature a chapter on the major uncertainties related to future oil demand and supply, taking into account factors such as the impact of the COVID-19 pandemic. A version of the WOO will be provided to the Special Meeting of this Board in September this year. Your valuable input will feed into the final publication of the WOO in early November.
I would point out that these are not only important sources of information for our Member Countries. They are must-have publications for the industry, the media, analysts and many other stakeholders. Our publications – along with the regularly updated data and information that we make available through our website – add enormous value to the Organization’s strategic outreach to the broader community. They also underscore our commitment to dialogue, cooperation and transparency.
As we approach the 60th Anniversary of OPEC in September, the Secretariat will publish a tome on the history of the Organization to date. It will chronicle the many great moments over the years – including the challenges we have overcome through cooperation, and the opportunities we have embarked on through shared purpose and vision. It will be a timely reflection of six decades of OPEC history in the year of COVID-19.
I am confident that this Organization will emerge from the current challenging and unprecedented times more united, stronger and more forward-looking. We are not out of the woods yet. But the historic OPEC+-led response to the current crisis is already helping to reduce volatility, stabilize the oil market, and to provide a platform for recovery and growth in the coming months and years.
Our meeting this time is shorter than planned given the special circumstances and virtual environment.
We will also keep the presentations – which were shared with you in advance – very focused to allow sufficient time for discussion. We will do our utmost to run an efficient meeting in keeping with the schedule.
– Being the opening remarks by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 133rd Meeting of the Economic Commission Board, 3 June 2020, via videoconference.
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