The end of this month will mark one year since the 171st Meeting of the OPEC Conference, where decisions were taken to implement significant oil production cuts in an attempt to establish a stable and balanced oil market.
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Shortly following the OPEC meeting, a ‘Declaration of Cooperation’ was signed between OPEC and non-OPEC producing countries, whereby 24 participating nations agreed to cut production by approximately 1.8 million bpd for a period of six months, starting January 2017. This agreement was eventually extended by an additional six months and is currently due to expire at the end of March 2018.
As the anniversary of this historic meeting approaches, OPEC General Secretary, Mohammed Barkindo, has hailed the accomplishments made to date. Speaking recently at the Oil & Money conference in London, UK, Barkindo suggested that a balanced oil market is now fully in sight: “Stability is steadily returning and there is far more light at the end of the dark tunnel we have been travelling down for the past three years.”
Barkindo notes that oil stock levels in OECD industrialised nations have fallen considerably, hitting 159 million bbls above the five-year average for the month of September, compared to 338 million bbls at the start of this year. What’s more, global oil demand growth is strengthening. OPEC has increased its demand growth forecast for 2017 to 1.5 million bpd, up from 1.15 million bpd in its December 2016 ‘Monthly Oil Market Report’. Meanwhile, it is predicting a growth of 1.4 million bpd in 2018.
While Barkindo admitted that the ‘Declaration of Cooperation’ has laid the foundations for stability, he was quick to stress the importance of retaining and building upon this platform in order to ensure that market balance is not only achieved quickly, but that it is retained in the short, medium and long-term in order to meet future demand growth.
The International Energy Agency (IEA) appears to agree with Barkindo. In its most recent ‘Oil Market Report’, the agency concluded: “A lot has been achieved towards stabilising the market, but to build on this success in 2018 will require continued discipline.” Ahead of the next OPEC meeting at the end of November, the IEA notes the significance of a spate of recent investment agreements between Saudi Arabia and Russia, signed as part of King Salman bin Abdulaziz’s recent state visit to Moscow. Prominent figures from both countries have also issued statements suggesting that the production cuts could well be extended beyond March 2018. While another nine months of output restrictions are widely expected, Barkindo cautioned that such a decision may be postponed until the new year, depending on market conditions. As we await the outcome of the upcoming OPEC meeting, you can read more about Russia – and the progress that its refineries are making to modernise and increase depth of conversion – in our latest regional report from Euro Petroleum Consultants (EPC), starting on p. 12 of this issue.