Fundamentals in focus

OPEC Bulletin Commentary December 2019-January 2020

While Vienna’s Christmas markets were in full swing, the end of November and first week of December 2019 saw the OPEC Secretariat play host to saw a plethora of intense and productive meetings. There were no festivities, no fanfare, just OPEC, and its non-OPEC partners in the ‘Declaration of Cooperation’ (DoC) focused on the best way forward to help maintain a balanced market and sustainable stability in 2020.

Data was evaluated, numbers crunched, analysis reviewed and discussions undertaken through the OPEC and non-OPEC technical meeting, OPEC’s Economic Commission Board, the 35th Meeting of the Joint Technical Committee, the 17th Meeting of the Joint Ministerial Monitoring Committee, which then culminated in the 177th Meeting of the OPEC Conference and the 7th OPEC and non-OPEC Ministerial Meeting.

It was evident based on the then current oil market conditions and the in-depth scenario analysis put together by experts at the OPEC Secretariat that figures pointed to a significant imbalance in the first half of 2020. Numbers showed that there could be an oversupply of 700,000 barrels/day (b/d) and 900,000 b/d in the first and second quarters, respectively, if nothing changed.

There was recognition that action needed to be taken, otherwise it could lead to rising stock levels, a swelling market imbalance and greater volatility.

The focus was on the fundamentals. The 24 participants in the DoC had to show vigilance, flexibility and commitment to take the necessary actions — as they have done in the past — in the interests of producers, consumers and the global economy.

Following dynamic and positive negotiations, and weighing up the options available, Ministers decided on an additional adjustment of 500,000 b/d to the voluntary adjustment levels as agreed at the 175th Meeting of the OPEC Conference and the 5th OPEC and non-OPEC Ministerial Meeting. The upshot is total adjustments of 1.7 million b/d, effective as of January 1, 2020, for a period of three months.

Moreover, several participating countries, mainly Saudi Arabia, will also continue their additional voluntary contributions, leading to adjustments of more than 2.1m b/d, although it was noted that the additional adjustments are subject to full conformity by every country participating in the DoC.

The decision was a clear and unambiguous statement. The DoC partners remain engaged and proactive, with countries reaffirming their continued commitment to a stable market, the mutual interest of producing nations and the efficient, economic and secure supply to consumers.

Ministers also put in place a near-term date, extraordinary ministerial meetings in March, to fully monitor progress, and ensure that the market does not tip out of balance, one way or the other. As HRH Prince Abdul Aziz Bin Salman Al Saud, Saudi Arabia’s Minister of Energy, said at the joint press conference following the ministerial meetings: “The reason, and the signal we want you to take with you, is that we are collectively showing readiness to take whatever necessary measures we may face by that time.”

Following the meetings, it was clear that financial markets, in general, and the financial oil market, in particular, once again welcomed the forward guidance provided by the DoC partners. OPEC fully appreciates the need to offer clear signs to all stakeholders.

One delegate called it a “mammoth” stretch of meetings, while another labelled the outcome as “positive for all parties”. It was both and all things to all people. There have been many words written following the outcome, and much analysis produced, but what is clear is that a decision had to be taken. It was timely and pre-emptive, and it is perhaps apt to finish on the words of William Shakespeare:

  • “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.”

OPEC Bulletin December 2019-January 2020

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