OPEC Secretary General: Declaration of Cooperation ‘solid as the Rock of Gibraltar’

HOUSTON -- OPEC Secretary General Mohammed Barkindo asserted that the oil cartel’s ongoing efforts to limit global crude production, along with 11 non-OPEC countries, could serve as a long-term strategy to reduce boom-and-bust oil prices, while speaking at CERAWeek in Houston on March 5.

Barkindo expressed interests in not only extending production cuts wrought by the Declaration of Cooperation—now referred to by some as the “Vienna Alliance”—but in expanding the agreement to as many oil producing nations as possible. The deal originally was agreed to for six months in December 2016, but was reconsidered and prolonged several times during 2017, and was most recently expanded to cover the entirety of 2018. It has amounted to an estimated 1.8-MMbopd output reduction. The secretary general described the agreement as an act to “literally rescue the industry from collapse,” remarking that its state “is as solid as the Rock of Gibraltar.”

“It is in the interest of this industry, as well as consumers, that we should continue in this framework, in order to ensure sustainability and stability of the market and this industry,” Barkindo said. “We see this alliance as an assurance against future volatility (and) future price cycles.” He chalked up the agreement’s success, so far, to participating countries’ firmness in adhering to prearranged production cuts.

The OPEC leader expressed his opinion just as the International Energy Agency (IEA) announced, during the same day, its forecast for the U.S. to become the world’s top oil-producing nation within five years. IEA also projects growing supply from the U.S. to meet 60% of oil demand growth over the next five years, with Brazil, Canada and Norway contributing as well, and the agency expects global oil demand to grow by 7 MMbpd over the same period.

“If you dive into the numbers, you see that there is a growing interest in the short-cycle projects,” IEA Executive Director Fatih Birol said, referring to U.S. shale oil and gas, while participating in a panel discussion with Barkindo regarding oil markets.

However, Birol expressed concern that such focus on cheaper short-cycle investments could create challenges in meeting long-term demand growth, with mature global oil fields declining at a rate of about 3 MMbopd each year. “We don’t see a peak in oil demand for many years to come,” Birol said. He said the IEA expects the petrochemicals sector to become a major driver for future oil demand growth, aside from a growing global population.

Underscoring his apprehension regarding long-term investments, Birol said that IEA tracked an annual decline in funding to the tune of 25% for two years straight, in 2015 and 2016. While 2017 remained flat, Birol said that 2018 is on track for a mere 6% increase, far lower than investment levels before the 2014 oil-price crash.

Barkindo echoed Birol’s sentiment, remarking that if current investment trends continue, the world could be “sowing the seeds for a global energy crisis.” He said OPEC projects global GDP to increase 3.8% in 2018, and cited a forecast population growth of 1.8 billion by 2040, with developing countries accounting for much of the expansion. Adding this dynamic to the world’s challenge to end energy poverty is a recipe for continued growth, he suggested. “Over one billion people still have no access to electricity, have no access to heating, (and) over two billion people still have no access to commercial energy for cooking. Therefore, we also subscribe to the position of the IEA, that we cannot see (a) peak demand.”