The Organization of the Petroleum Exporting Countries (OPEC) has confirmed its decision to implement a new OPEC-14 production target of 32.5 MMb/d effective 1 January 2017 to accelerate the ongoing drawdown of the stock overhang and bring the oil market rebalancing forward.
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Image of HE Al-Sada, from OPEC. |
The reduction agreed today (30 November) at the OPEC 171st meeting in Vienna, will cut output by some 1.2 MMb/d, from the current 33.64 MMb/d.
OPEC also agreed at the conference to establish a High-level Monitoring Committee, consisting of oil ministers, and assisted by the OPEC secretariat, to monitor the implementation of the agreement.
OPEC will institutionalize a framework for cooperation between OPEC and non-OPEC producing countries on a regular and sustainable basis.
Earlier reports from Reuters said that Saudi Arabia agreed to cut its oil output to 10.06 MMb/d, from 10.54 MMb/d.
The OPEC source also told Reuters that OPEC agreed to suspend Indonesia from OPEC and allow Iran to set new production levels at 3.797 MMb/d, from 3.69 MMb/d (from October).
Before Wednesday's meeting, Saudi Energy Minister Khalid al-Falih said OPEC was indeed focusing on reducing output to a ceiling of 32.5 MMb/d and hoped Russia and other non-OPEC producers would contribute a cut of another 0.6 MMb/d, according to Reuters.
When OPEC met in September, in Algiers, the OPEC Reference Basket stood at just above US$42/bbl. The agreement reached in Algiers was effective in arresting any further deterioration in prices and helped reduce relative volatility. In fact, the Reference Basket climbed to above $49 by mid-October, HE Dr. Mohammed Bin Saleh Al-Sada, Qatar's Minister of Energy and Industry and president of the OPEC Conference said at the opening address in Vienna.
However, the price started falling and by 14 November it had dropped below $41/bbl. The past month or so has shown that price volatility is still a significant concern. From the supply and demand perspective, there are signs that the rebalancing of the fundamentals is underway, according to HE Al-Sada.
In the opening address, HE Al-Sada said: “This year we expect non-OPEC oil supply to contract by 800,000 b/d, compared to growth of 1.5 MMb/d in 2015. And in 2017, we only see a small growth in non-OPEC supply of 200,000 b/d. World oil demand is expected to grow at healthy levels of around 1.2 million barrels a day in both 2016 and 2017.
“In addition, global economic growth forecasts remain reasonable for both 2016 and 2017, at 2.9% and 3.1% respectively. Nonetheless, as we have repeated on many occasions throughout the year, the large stock overhang continues to be a major worry.
“Despite the fact OECD commercial oil stock levels this year have seen little change, with the total level in September only slightly higher than that seen in January, they remain stubbornly high. Moreover, they are still more than 300 MMbbl the five-year average. It is vital that stock levels start to fall, as the decision taken in Algiers recognized. As we have seen in previous cycles, once this overhang starts falling on a regular basis then prices start to rise and more stability will return to the market.
“This persistent stock overhang, as well as the recent price volatility, has sharpened our minds. All producers now understand the gravity of the situation. And I should add that all consumers should comprehend the gravity of the situation too.
“It is also important to underscore that we need to not only consider the short-term, but the medium- and long-term as well. Of course, the short-term directs our current thinking, but as we all know, this is very much a medium- to long-term business.
“In this regard, let me reiterate two key points I have made on many occasions. Firstly, this remains a growth business, with oil demand in OPEC’s 2016 World Oil Outlook reaching over 109 MMb/d by 2040, a healthy increase of over 16 MMb/d. And secondly, this growth will require significant investments in the upstream, midstream and downstream. Overall, estimated oil-related investment requirements are close to $10 trillion in the period to 2040.
“We need to ask ourselves whether the situation that has evolved over the past two years or so is putting this future at risk. Global spending on exploration and production investments fell in both 2015 and 2016, and some are now even talking about this continuing. A third year of investment falls would be unprecedented for the industry.”
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