The fall of crude oil price in the international market after the decision by the Organization of Petroleum Exporting Countries (OPEC), on May 25th, to continue with its production cut till March next year is not a major concern for now, the secretary general of the group, Mohammed Sanusi Barkindo has said.
While many commended the spirit of continuing co-operation between OPEC and non-OPEC countries, as well as the reported high levels of conformity to the pact, the oil price initially tumbled by 5% in the wake of the announcement, as many investors had hoped for deeper cuts.
Prices have posted a recovery since, with Brent crude currently trading at around $52 a barrel as of May 29th, four days after the landmark accord.
Speaking to the media after the agreement between OPEC and a group of 11 non-OPEC oil producers in Vienna, Barkindo said the bloc’s objective is to rebalance the crude oil stockpile globally and that can only be achieved eventually.
“Volatility in price, before, during and after the OPEC meetings is almost routine, because traders taking position on both side, in anticipation of decision by OPEC, and as you know they use the media in order to advocate their positions,” he told reporters.
OPEC members and a Russia-led group of 11 non-OPEC countries on May 25th agreed to prolong production cuts for a further period of nine months, beginning from the 1st of July, in a bid to stabilise oil prices and reduce oil inventories.
The recent deal was an extension of the previous agreement that was reached between the two sides last December, taking effect from 1st of January this year, to reduce production by 1.8mn barrels per day (bpd) – since when oil prices have remained relatively stable at around the $50/barrel mark.
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Libya and Nigeria will however continue to be exempt from production cuts, it was announced at the cartel’s scheduled meeting at its headquarters.
“The conference decided to extend the commitments by 9 months (till March next year), because the first commitment will end in June, and from the figures we received so far from January to April, we are yet to achieve our target of bringing down stock inventories that has been in an unsustainable level for the past three years as a result of the impact of the severe downturn of the current oil market circle,” Barkindo has explained.
“We have been witnessing steady drawdown of the stocks but not at the pace that we expected and therefore we thought we needed more time, more patience to achieve this market balance,” he said.
He said members were all united on one cause as stock has never been at a high level in the history of this industry, as it was in the last two to three years.
“At one point last year, we had petroleum stocks around the world over 380mn above the five year industry average. We have storage both onshore and offshore filled up and in this equation, stock is the key veritable in maintaining stability, so we were united on that front, that in order to balance it we need to balance the market,” Barkindo said.
According to him, that was the reason why for the last six months OPEC kept withdrawing 1.8mn bpd from the market. “Now the impact of that has been us being able to bring down stocks from about 380mn bpd level above the five-year industry average to now around 250mn bpd. But we can still see that we are far behind our target, hence, the need to extend the decision not only for six months, as provided in the declaration in December (2016), but to protract it to 9 months now.”
The OPEC secretary general also said traders had raised huge amounts of money in the market either on a long or short-term basis, and “because of this high level of stocks in the market is very sensitive.”
He further said the slid in oil prices after the recent meeting was caused by speculations in the market that OPEC was going to deepen the adjustments with higher numbers, beyond the existing 1.8mn bpd limit.
“I think the market anticipated that, but we do not react to market conditions. We look at the fundamentals and we are very satisfied with the fundamentals,” Barkindo said.
“Supply is coming down, our conformity level is over 100% for both OPEC and non-OPEC. This has never happened before. Going forward our projections are that demand will grow by about 2mn bpd, so all we needed to do instead of deepening the cut was to extend the decision by nine months, not six, and to increase our commitments.”
