Source: Organization of the Petroleum Exporting Countries – OPEC
Delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 15th OPEC and non-OPEC Ministerial Meeting, 1 April 2021, via videoconference.
I would like to take this opportunity to offer a very warm welcome to HE Mohamed Ahmad Aoun, Libya’s new Minister of Oil. Excellency, on behalf of OPEC and the Declaration of Cooperation (DoC), we wish you great success in your important role. We would also like to extend our sincerest thanks to HE Mustafa Sanalla, Chairman of the Libyan National Oil Corporation for the many contributions he has made to OPEC and the DoC throughout his tenure as Libya’s representative to OPEC.
It is exactly one year ago that we were beginning the horrifying month of April 2020. None of us will forget the traumatic impact of the COVID-19 pandemic, on people’s lives, and on the oil industry, with demand dropping by more than 20 mb/d, and WTI plunging to a negative $37/b!
It was a visceral time for us all, but it was also broken by the historic production adjustments from the group of producers I see before me on the screen today.
It has proven to be a prescient decision. The Declaration of Cooperation (DoC) and the steadfastness to conformity and compensation from participants has been central to the recovery of the industry that is such a vital cog in oiling the global economy.
We need to continue on this path, be guided by the data and analysis, review the outlook on a regular basis and take things one step at a time. The cautious and careful approach has proven effective thus far, as can be viewed in the decision taken at the 14th OPEC and non-OPEC Ministerial Meeting.
The decision to approve a continuation of the production adjustment levels of March 2020 into April was judicious, particularly given the market volatility we all witnessed in the last two weeks of March, with significant market sell offs and crude futures flipping into contango. This was driven by a combination of rising coronavirus cases and new variants, further lockdowns in Europe, concerns over softening oil demand and generally more fragility in the outlook.
Crude futures, however, did move back into backwardation following the longer than expected blockage of the Suez Canal, a vital artery for global trade.
On the topic of crude futures, let me say that the launch on March 29 of the world’s first Murban Futures contract, pricing the flagship Abu Dhabi grade, is an historic moment for the UAE, ADNOC, the Intercontinental Exchange (ICE) and Abu Dhabi. The exchange is also supported by nine of the world’s largest energy companies and traders, and has been realized with great vision, fortitude and years of hard work in the UAE.
This is also an opportunity to commend the Kingdom of Saudi Arabia and HRH Crown Prince Mohammed bin Salman on the launch earlier this week of the ‘Shareek’ programme that focuses on strengthening partnerships between the government, the private sector and local companies. There is no doubt that this will contribute towards the country’s economic growth and development, and be vital to prosperity in global markets.
Returning to the oil market, there are evidently many positives to focus on too, such as the rollout of vaccines, further fiscal stimulus, particularly the huge $1.9 trillion package in the US, and of course, the continued commitment of the DoC on sustained market stability and bringing down inventory levels.
Today, we need to decide on the next step as we chart a path for the rest of the second quarter of 2021 and beyond, so allow me to provide you with a few highlights and shifting trends to forecasts since we met last at the beginning of March.
Last month we saw global economic growth in 2021 at 4.8%, but expectations are now higher at 5.1%. The additional US stimulus measures are a major driver in this upward impetus, but our recent scenario analysis suggests that this slight uptick may need to be revised given the many uncertainties elsewhere.
Global oil demand in 2021 is slightly lower at 5.6 mb/d. We also need to remember that demand contracted by 9.6 mb/d in 2020, so a return to 2019 levels is not expected before 2022.
On the demand front, we continue to see a divergence between the first and second half of 2021. The first half has again been adjusted lower, primarily on the back of extended measures and new lockdowns in many key parts of Europe. Oil demand growth in the second half, however, remains intact. This reflects prospects for a stronger economic recovery with the positive impact of further vaccination rollouts.
What the economic and demand outlook are showing us is that we need to be watchful, and tread a prudent path. There remains many impediments and potential obstacles to the recovery, including further lockdowns; the uneven rollout of vaccines across the world; the prevalence of COVID-19 variants; sovereign debt levels in many regions; and inflationary pressures and central bank responses.
From the supply perspective, non-OPEC liquids is forecast to grow by almost 1 mb/d in 2021, compared to 0.7 mb/d expected at our last meeting. One important point of reference is that the US liquids supply forecast remains unchanged, with growth of 0.16 mb/d in 2021.
Looking at inventories, preliminary February 2021 data shows a further OECD commercials drawdown of around 45 mb. This follows a drop of around 14 mb in January. The February level is 95 mb higher that the same time one year ago, and 58 mb above the average for the period 2015-2019.
What is evident in the February stock draw is that it is mainly attributed to products, particularly in the US. Product inventories moved sharply lower on the back of very low refinery runs as a result of severe US winter weather.
The realignment of inventories is also been driven by the excellent conformity to the production adjustments from DoC participants. The large and generous additional commitment of 1 mb/d for February, March and April from the Kingdom of Saudi Arabia has also been instrumental in the rebalancing process, and in helping achieve a more stable market. The Kingdom of Saudi Arabia has shown exemplary leadership.
The forward-looking commitment is eloquently summarised by Jalāl ad-Dīn Muhammad Rūmī:
“Patience is not sitting and waiting, it is foreseeing. It is looking at the thorn and seeing the rose, looking at the night and seeing the day. Know that the moon needs time to become full.”
The dedication, teamwork and flexibility we have shown over the past year has been a guiding light for the recovery we have all witnessed. In this regard, I would like to applaud the exemplary leadership of the co-Chairs, HRH Prince Abdul Aziz bin Salman and Alexander Novak, who have led from the front during this most extraordinary year in the history of oil.
This focus and commitment needs to remain front and centre of everything we do, as we look to build on what we have achieved so far.