World oil market rebalancing needs great patience

OPEC's steely and resolute focus remains on reducing inventories, moving the stock overhang to its five-year average and ensuring sustainable market stability in the years and decades ahead, OPEC chief, told Reuters Global Commodities 2017 Summit, via video, on Monday in London.

''The best way to achieve market rebalancing process that is vital to the sustainable market stability that both producers and consumers desire, and which is beneficial to the global economy as a whole is to do so collaboratively, in consultation with other energy stakeholders,'' Mohammad Barkindo, OPEC Secretary-General, said.

''The landmark ‘Declaration of Cooperation’ and the production adjustments reached by OPEC and participating non-OPEC producers at the end of 2016 and then extended in May 2017, for a further period of nine months to the end of March 2018, has been a major commitment from 24 producing countries as we look to see the return of sustainable market stability,'' Barkindo indicated.

''We are now just over nine months into the ‘Declaration of Cooperation’. I could tell you that the process has been a straightforward one, but I think we can all appreciate that the rebalancing process was never going to happen overnight and it was never going to happen in a linear fashion,'' he noted.

To help contain, and then alleviate the current oil market cycle, has required great patience, resolve and perseverance. The cycle has been described by many as the worst they have ever seen in the history of the industry. 'All participants remain committed to fully achieving its goals and objectives. We will not waiver; we will not tire,''he affirmed.

It is a cycle that saw the OPEC Reference Basket fall by an extraordinary 80 per cent between June 2014 and January 2016, the largest percentage fall in the six episodes of sharp price declines we have observed over the past four decades; where thousands upon thousands of jobs were lost; where many projects and investments were frozen or discontinued; and where many companies saw great financial and operational stresses.

''We have every reason to be satisfied with the steady and ever-improving progress we have made in our collective efforts to overcome the challenges of the current oil market cycle. As I said in Moscow last week, it is "so far, so good". There is clear evidence that the market is rebalancing.

There are a number of factors why the rebalancing has recently gathered pace, including the unprecedented high conformity levels among the 24 participating nations in terms of the production adjustments; strong oil demand growth; and slower than anticipated growth in US tight oil supply.

Conformity levels to the production adjustments have been remarkably strong throughout the year. The 5th Meeting of the Joint Ministerial Monitoring Committee held on September 22 in Vienna confirmed the effectiveness of the ‘Declaration of Cooperation’, with the month of August hitting a remarkable overall conformity level of 116 percent! ''It has sent a clear message to the market that countries that are part of the ‘Declaration of Cooperation’ have their eyes firmly on the goal of bringing back sustainable market stability.

''Global oil demand growth has also been robust, with an estimated increase of close to 2 million barrels a day from the first to the second half of this year. Moreover, the OPEC Secretariat in our most recent Monthly Oil Market Report raised projections for oil demand in both 2017 and 2018. These upward demand revisions are most likely to be an ongoing trend,'' he noted