Opec’s decision to boost oil production from next month clearly testifies the fact that it values market stability and is keen to safeguard the interests of energy consumers who have earlier voiced concerns on rising oil prices.
On Friday, the Organisation of the Petroleum Exporting Countries said it would raise supply by returning to 100% compliance with previously agreed output cuts.
Reports suggest the move would translate into a nominal output rise of around 1mn barrels per day (bpd), or 1% of global supply.
The co-operation between Opec and allied non-Opec producers since January 1, 2017 has helped “stock overhang being brought down to almost zero”, HE the Minister of Energy and Industry, Dr Mohamed bin Saleh al-Sada said recently.
The ‘Declaration of Co-operation’ agreement between Opec and allied non-Opec countries effective from January 1, 2017, has been very successful in balancing the market by reducing the overhang of a staggering 340mn barrels above the OECD (Organisation for Economic Co-operation and Development) five-year average commercial stock levels of 2.81bn barrels, he said.
“With a committed production adjustment over the 500 days till mid-May this year, the stock overhang has been brought down to almost zero,” al-Sada told S&P Global Platts ahead of the Opec meeting in Vienna.
A major concern aptly raised by al-Sada and other global energy leaders is the lack of current investments in the industry. The crash in oil prices since mid-2014 has virtually dried up investments, which peaked at $900bn in early 2014.
According to al-Sada, it was estimated that the industry would only be spending $510bn in 2018.
Up to April 2018, while oil prices increased by nearly 25% compared to the same period last year, investment in oil industry has not picked up in a commensurate manner.
Except for shale plays in the US, there is still a general hesitation in committing resources for oil exploration and development across the globe.
Clearly, there is a need to stimulate investments to ensure adequate oil supplies are available to meet the growing demand and offset declines in some parts of the world.
Opec and its allies (also known as Opec+) have since last year been participating in a pact to cut output by 1.8mn bpd. The measure had helped rebalance the market in the past 18 months and lifted oil to around $75 per barrel from as low as $27 in 2016.
The world’s top three energy consumers – the United States, China and India have been urging oil producers to release more supply to prevent an oil deficit that could undermine global economic growth.
The co-operation between Opec producers and their allies have certainly contributed to the stabilisation of the market, which is in the best interest of the global economy.
The Opec decision to enhance oil output from July has been taken considering the short term and long term market stability.
While views differ, depending on which side of the fence one is, the fact remains the Opec decision is appropriate and one that benefits both suppliers and consumers alike.
Viewpoint
