OPEC members have a common goal to protect the oil market, by Barkindo
It’s been troublesome period for economies, with the persistent low oil prices. Where did it all started?
To put it in proper and global perspective, when the last bull run of prices saw crude prices rose over $120 per barrel and as at July 2014, some of our crude streams had hit over $140 per barrel. In conventional economics, it was just a matter of time for correction in the market. But what most focused agencies, including OPEC failed to take correctly, was the length of time it was going to take for this correction and for the market to re-balance.
This is perhaps the longest cycle that we have seen in recent times. It is taking us now into the third year of this correction, with the rebalancing target being put forward.
So, it is not only OPEC that missed the target, but most other agencies including the IMF and World Bank. You have had in the last two days of extensive consultations and discussions at the ongoing annual meetings that some of these models were found wanting. Nobody expected that this cycle would last this long and the severe consequences of th huge revenues that we have lost. OPEC member countries alone, in the last two years have lost over $1 trillion in terms of revenue. In terms of investment into this industry, we have seen contraction of about 26 per cent in 2015 and in this year, so far we are projecting a further contraction of 22 per cent.
As I have just mentioned in the plenary, the prospect for 2017 is also still looking bleak. So, for the first time in recent memory, we are not only having three consecutive years of depressed oil prices, but we are also seeing contraction in capital investments, particularly in the upstream for three consecutive years. Now, this is a very serious development that is threatening future supply to the global community with its consequences on the fragile economies as you have heard from the IMF.
Given this gloomy picture, what do you think member nations should be doing, especially for a country like Nigeria?
We are just coming out of our last meeting in Algiers, which took place on September 28, where OPEC took a very proactive and timely decision to agree on a range of ceiling of 32.5 million barrels a day to 33 million barrels a day production for the OPEC 14. That was the first time that OPEC took such a decision since 2008. The objective of this decision was to restore stability in the market and to address the issue of high inventories that is depressing prices. Don’t forget that this cycle is driven by supply. We have seen growth in supply both from OPEC and non-OPEC becuase of the shale revolution in the United States and North America.
We have seen supply growth from non OPEC members, to the tune of nearly eight million barrels per day. So, the market became saturated. Although demand is robust, inventory started rising to unprecedented levels. At the moment we stocks both offshore and onshore floating storage of three billion barrels of crude. Now, the decision at Algiers was aimed at stimulating further stocks drop down on a sustained basis and we have seen now that for almost five week, continuous stock drop down in the United States which is the biggest market. The sum total of that hopefully would bring forward the rebalancing of the market so that we would be able to achieve some form of equilibrium in prices with impact on revenues to member countries, especially our country Nigeria that has suffered both from low prices as well as low production.
You talked about Nigeria and two other countries being given preferential treatment kind of. What kind of preference do you mean by that?
The decision that we took in Algiers took into account the special but unfortunate circumstances of three of our member countries. To account for the special but unfortunate circumstances of three of our member countries including Nigeria, Libya, and the Islamic Republic of Iran. Nigeria had been suffering from the impact of low prices, as well as the impact of low production because of the communal disturbances in the producing areas.
We have lost on the average, about 700,000 barrels per day in production. So also is Libya, Libya has lost over 1.3 million barrels a day as a result of similar and even more serious social and political unrest in the country. Iran is just emerging from sanctions, during which production suffered significantly. In the interest of the whole organisation, ministers decided in Algiers to take into account these special circumstances when it comes to the implementation of the production position we must take.
Do you envisage an increase in prices in a matter of days, months, years, or is it a hopeless situation?
Since Algiers, since the 28th of September, prices have risen by over eight percent, across the board, you can see that the two benchmarks across both WTI and Brent have attained over $50 a barrel. We remain cautiously optimistic that this trend will continue, bringing forward the rebalancing process with firmer prices. That is not only in the interest of OPEC or producing countries, but as well as consumers, as you have heard from the IMF themselves.
What is the position of Nigeria and the output cut?
OPEC will like to see Nigeria attain its potential again. Nigeria has a very much higher level of production capacity than what it is doing at the moment, so also is Libya, to a large extent, Iran. We look forward to these three countries recovering their potential to come back into the international market, so that we would move forward holistically.
For the first time in 8 years, you helped reach an output cut, was it part of your plan?
Every member country of OPEC has its own sovereign national interest and objectives to achieve, but bound together by the spirit and letter of this organisation. Despite what you may perceive to be differences, when they come around the table, they have one common interest and that is what drove them into reaching this decision.
Nevertheless, as you know very well, extensive consultations have been taking place since the last attempt in Doha in April, before I was even elected. Attempts were made in Doha I (January, February) and Doha II (April). Since then, these consultations have continued, I myself have visited several of these member countries. I have been to Saudi Arabia, I have met the King, I went to Iran, I met with President Hassan Rouhani. I was in Qatar, I met with the prime minister. All our ministers are engaged in these extensive consultations, and this will continue next week in Istanbul, when we met at the World energy conference.
Since your appointment, can you share your experience and your projection, going forward?
We remain optimistic; the industry has always moved in cycles. We have seen in recent times; this is probably the sixth cycle. We are going to get out
of this cycle; what is unique about this cycle is that it has brought convergence of views from the producers as well as consumers.
In the last two days, we have had delegates here, and governors of central banks, very concerned with the fragile nature of the economic recovery. Madam Lagarde had made a very holistic and very realistic assessment of the global economy; too low growth for too long, and benefiting very few, which I replied to her this morning that this is holistic because it also applies to oil. This cycle has taken too long because we all thought that it was going to be for a short period of time, but we are now moving into the third year of low oil prices with all the consequences.
Now you can see that there is a convergence, both the producers and the consumers are moving towards one direction. There is more pressure from the consuming nations, that OPEC should take action in order to restore stability and balance in the market, in the interest of both producers and consumers. I remain optimistic that we would together achieve this global objective.