Edozie Udeojo,Abuja
The Organisation of Petroleum Exporting Countries (OPEC) led by Saudi Arabia and other key oil producers held its 179th meeting on Saturday through an online conference where they jointly agreed to extend historic output cuts through July.
This was as Nigeria agreed to compensate for its inability to fully comply with the April deal by henceforth embarking upon deeper cuts over the next three months.
Just as Secretary General of OPEC, Mr. Mohammad Barkindo, cautioned member countries not to be carried away by recent gains in the oil market as evidenced by the gradual rise in oil prices and the on-going recovery process.
Minister of State for Petroleum Resources, Chief Timipre Sylva, had in statement said Nigeria was unable to completely adhere to the agreement of the 23-member cartel to reduce daily production by 9.7 million barrels. Sylva stressed that the country achieved a 52 per cent success.
The 13-member cartel and its allies, among them Russia, decided to extend by a month deep cuts, first agreed in April for May and June, to boost prices hit hard by the new coronavirus pandemic, an OPEC statement said.
“All participating countries… agreed the option of extending the first phase of the production adjustments pertaining in May and June by one further month,” it said.
Prices have plummeted over falling demand as countries around the world have imposed strict lockdowns to stop the spread of the new coronavirus.
Under the terms of the April agreement, OPEC and the so-called OPEC+ countries pledged to cut output by 9.7 million barrels per day (bpd) from May 1 until the end of June.
The cuts were then to be gradually eased from July, to 7.7 million bpd until December.
But Saturday’s meeting agreed to extend the May and June output cuts.
The April oil quota cut deal followed the effect of the COVID-19 pandemic on global demand and a devastating price fall brought about by a price war between Russia and Saudi Arabia. While the agreement called for the curbs to ease at the end of June, OPEC, however, decided yesterday to remain cautious and extend the production restrictions to July, with China and other countries gradually opening up their economies.
For May, OPEC+ compliance with the deal was about 89 per cent, meaning the group fell some 1.1 million barrels short of the target set in the April agreement. The news also reflected on the international price of oil Saturday, with Brent crude futures, the global benchmark of prices, rising 5.8 per cent to $42.30 a barrel, the highest level since March.
A statement released by OPEC after the virtual meeting noted the positive ramifications of the decision taken by all participating countries in the Declaration of Cooperation (DoC) and commended additional adjustments from Saudi Arabia, United Arab Emirates (UAE), Kuwait, Oman, Norway, and Canada, and shutting in of production in view of the acute imbalance in the global oil markets.
The statement said, “It was emphasised that the production adjustments in May, as well as the gradual relaxation of many of the lockdown measures as a result of the COVID-19 pandemic across the globe and an economic pick-up, had contributed to a cautious recovery and the return of more stability in the oil market.
“Nevertheless, with global oil demand expected to contract by around 9 mb/d for the whole of 2020, consolidating this gradual recovery will require continued commitment and intensified efforts from DoC participating countries and all major producing countries.
“In light of these facts, and in view of current fundamentals, all member countries agreed to the five key elements in reaching their unanimous decision, which will be recommended to non-OPEC participating countries.”
It added that members, “Reconfirmed the existing arrangements under the April agreement, subscribed to the concept of compensation by those countries who were unable to reach full conformity in May and June, with a willingness to accommodate it in July, August and September, in addition to their already agreed production adjustment for such months.”
Member countries also agreed the option of extending the first phase of the production adjustments pertaining to May and June by one further month and recognised that the continuity of the current agreement was contingent on them fulfilling their obligations.
“The meeting, therefore, agreed unanimously to extend the first phase of the production adjustment agreed at the 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting for a further month, to now run from 1 May 2020 to 31 July 2020,” OPEC said.
Meanwhile, Barkindo warned at the 11th OPEC and non-OPEC ministerial meeting held via videoconference that despite the successes in the market, global oil demand was still expected to shrink by more than 17 million barrels per day in the second quarter of 2020. He urged countries to remain committed and proactive to the recovery process, saying, “This is not the time to stand back and admire what we have achieved thus far.”
Barkindo said, “The very early green shoots of a revival are evident; we do hope that we have turned a corner. Nevertheless, global oil demand is still expected to shrink by more than 17 mb/d in the 2Q20, and while it is expected to ease in the second half of the year, for the whole of 2020 the contraction is still forecast to be around 9.1mb/d. This will bring global oil demand to 90.6 mb/d; back to levels last seen before the 2014-2016 market downturn. It underscores the fact that we cannot rest on our laurels. We need to maintain the laser focus on helping bring supply and demand back into balance and providing a more stable market in the coming months.
“This is not the time to stand back and admire what we have achieved thus far; we do not want to jeopardise these successes in any way. We also need to appreciate that the waters remain choppy, and as we navigate our journey it will not be plain sailing, but we have to remain resolute. It is in the interests of us all.
“It was the legendary Russian poet, Bulat Okudzhava, that once said: ‘Let us join hands my dear friends. We won’t get lost if we are together.’ Together we can ensure that our hard-earned achievements are not compromised or lost.
“Following on from the 179th Meeting of the OPEC Conference earlier today, it is vital that we look to lay out possible pathways for the coming months, the remainder of 2020 and into 2021.
“This will enable all DoC partners to remain proactive, focus on 100 per cent conformity, and help further rebalance fundamentals and reduce volatility in the oil market.”
He said though it had been a rollercoaster ride since April, what had been consistent over this period was the commitment of participants in DoC to the voluntary production adjustments, the largest and longest in the history of OPEC, OPEC+ and the oil industry, and to rebalancing and stabilising the market.
Barkindo also spoke on the effect of the COVID-19 pandemic, saying,
“A paralysis had gripped continents, nations, industries and people. As we all bore witness too, the effects on the oil market were unparalleled. Large-scale oil demand destruction, at a level never seen before; a massive supply and demand imbalance; and, global storage capacity filling quickly.
“Perhaps the epiphany of this was April 20, or what some have called ‘Bloody Monday’, when the WTI May contract went negative, ending the day at close to minus $40/b. The panic this day caused was palpable. It left CEOs, oil companies, traders and analysts open-mouthed; how could this have happened? It left us all searching for answers.”