A steady hand on the tiller

OPEC Bulletin Commentary May-June 2019

In the maritime port of Jeddah, the Kingdom of Saudi Arabia, during the holy month of Ramadan, the Joint Ministerial Monitoring Committee (JMMC) met for the 14th time with proceedings infused by the positive spirit of the month and the bonds of friendship, community and collegiality that have kept the historic ‘Declaration of Cooperation’ on an even keel.

It was a time to focus on areas of cooperation, collaboration and fraternal respect among all nations, and to emphasize how we can all gain by staying committed to our multitude of mutual interests and shared objectives. This was evident in the deliberations in Jeddah, with participants reaffirming the well-charted course of achieving a balanced market and working towards oil market stability on a sustainable basis with solid fundamentals.

The benefits of this were witnessed in the first part of 2019, with evidence of an improvement in market conditions compared to the turbulent waters and volatility of the fourth quarter of 2018. This has been beneficial not only to producers, but to consumers too.

However, we also recognize the fact that underlying risks remain. This was evident at the end of May and into June, with a high-level of market volatility, due to major challenges and uncertainties related to such issues as ongoing trade negotiations, monetary policy developments, as well as geopolitics.

There is no doubt that the positive developments at the start of 2019 has been helped by participants in the ‘Declaration of Cooperation’ changing tack in December 2018 with new voluntary production adjustments. The high conformity rates, with April 2019 reaching 168 per cent, a record high up to that month, has had positive ramifications for the oil market, and in turn, global economic growth. Average conformity for the first four months of 2019 is 120 per cent.

The JMMC noted that an “agile and flexible approach has been critical to the success of the ’Declaration’ to date and will be key going forward.” Since it began at the start of 2017, partners have been able to adapt strategy and trim the sails depending on market conditions.

That is not to say that it has been plain sailing. Balancing competing national priorities means participants have had to find practical and realistic solutions that may not fully fit everyone. That they have chosen to do so, however, makes the success achieved over the past 30 months or so even better.

There is recognition that we are on the same boat, and we all need to pull together. To recall the words of the American poet, Ralph Waldo Emerson: “No member of a crew is praised for the rugged individuality of his rowing.”

For example, when the market appeared skewed to oversupply, voluntary production adjustments were adopted and implemented, as was the case in December 2016 and December 2018, and equally, when concerns regarding demand outpacing supply surfaced as the market tightened, as was the case in June 2018, partners took appropriate action.

We will continue to carefully monitor oil market developments, particularly, oil inventory projections and the supply and demand balance, in the lead up to the 176th Meeting of the OPEC Conference and the 6th OPEC and non-OPEC Ministerial Meeting. As we have experienced over the past two years or so, maintaining a balanced market and sustainable stability requires all hands on deck. We need to ensure we have an understanding of the coordinates to help navigate an appropriate course for the second half of 2019.

We remain vigilant of any possible gathering storm clouds, and while continuing to take a measured approach, given conflicting data, and the ever evolving market situation, we will also not shy away from taking decisions, as we have already shown.

It was the writer, William Arthur Ward, who once said: “The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”

Be assured that all participants in the ‘Declaration’ will continue to look to do the right thing and maintain a steady hand on the tiller to help achieve the desired market balance and a sustainable stability, in the interests of producers, consumers, and the global economy.

OPEC Bulletin May-June 2019

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