MOHAMMED Sanusi Barkindo, secretary general of the Organisation of the Petroleum Exporting Countries, OPEC, has said that extreme volatility in the oil market has very negative consequences for consumers and producers.

“Low oil prices are bad for producers today and create situations that are bad for consumers tomorrow. And high oil prices are bad for consumers today and lead to situations that are bad for producers tomorrow. Volatility is a devastating disincentive for investment, which is the lifeblood of our industry and essential for ensuring adequate supply in the future,” Barkindo said.

While delivering the keynote address at the opening of the Nigeria Oil and Gas Conference and Exhibition July 3, Barkindo said: “We saw this during the last industry downturn. From 2014 to 2016, world oil supply growth outpaced that of oil demand, with world oil supply growing by 5.8 mb/d, while world oil demand increased by 4.3 mb/d.

“By July 2016, OECD commercial stock overhang reached a record high of about 403 mb over the five-year average. The OPEC Reference Basket price fell by an extraordinary 80 percent between June 2014 and January 2016.

“What was particularly ominous for consumers was the fact that investments were choked-off, with exploration and production spending falling by an enormous 25 percent in both 2015 and 2016. Nearly one trillion dollars in investments were frozen or discontinued, and many thousands of high quality jobs were lost.

“A record number of companies in our industry filed for bankruptcy. Lack of investment on this scale has very serious repercussions for future consumers, especially given the increase in world oil demand which is expected in the long term,” he said.

According to OPEC’s World Oil Outlook, long-term oil demand is expected to increase by 15 mb/d, rising from 94.5 mb/d in 2016 to 111.1 mb/d in 2040. To meet the projected increase in global oil demand, investments worth an estimated $10.5 trillion will be required.

This is why Barkindo said that investment is also necessary to offset the impact of natural decline rates, which can be as high as 5 percent per year.

“To maintain current production levels, the industry might need to add upwards of 4 mb/d each year. This background gives a sense of the gravity of the situation as OPEC and its non-OPEC partners held 11 intensive discussions throughout 2016 to build consensus about the strategic urgency of rebalancing the global oil market in a collective manner.

“The situation was bleak, but as the saying goes, the darkest hour is the one just before the dawn. So began the most intensive negotiations in the history of the Organization. Meetings lasted hours, days and nights. I witnessed displays of stamina in those sessions that I’ve never seen before in my life: including from our own Minister Kachikwu.

“Thankfully, all these labours were not in vain. With the landmark “Declaration of Cooperation,” twenty-four (now twenty-five) oil producing nations agreed at the first OPEC non OPEC Ministerial Meeting held on the 10th of December 2016 in Vienna, on a concerted effort to accelerate the stabilization of the global oil market through voluntary production adjustments of around 1.8 mb/d,” he said.

He said that the second OPEC non-OPEC Ministerial Meeting, held on the 25th of May 2017, extended the voluntary production adjustments for another nine months commencing on the 1st of July 2017.

Following the third OPEC and non-OPEC Ministerial Meeting on the 30th of November 2017, the declaration of cooperation was amended to take effect for the whole year of 2018. The 174th meeting of the OPEC Conference and the 4th OPEC and non-OPEC Ministerial Meeting, held on 22 and 23 June 2018, reaffirmed the partners’ unshakeable resolve to act in the interests of producers and consumers. Participating Countries agreed to strive to adhere to the overall conformity level of 100%, for the remainder of 2018,” he said.

– Jul. 3, 2018 @ 18:35 GMT |