Mr. Chairman, Excellencies, distinguished delegates, I would like to thank the Kuwaiti Government and HE Issam A. Almarzooq, for hosting the 2nd Meeting of the Joint Ministerial Monitoring Committee (JMMC). It is a great pleasure to return to Kuwait, the Jewel in the Gulf.
I would also like to thank everyone, both OPEC and non-OPEC delegations alike, for being here and for your continuous engagement towards fulfilling the objectives of this Committee, through the full and timely implementation of the decisions taken last year. Additionally, I would like to also extend my thanks to His Excellency Jabbar Al-Luiebi, Iraq’s Minister of Oil, in his firm stand and valuable contributions throughout the consultation process culminating in these landmark achievements and decisions of the Organization last year. I would also like to acknowledge the hard work of the Joint Technical Committee, which met for the second time a little over a week ago at the OPEC Secretariat in Vienna. Your efforts are greatly appreciated.
Mr. Chairman, Excellencies, distinguished delegates, at this juncture, and given recent market developments, I feel it is important that we take stock as to the current state of the oil market. We need to understand what has happened since the historic decisions taken by OPEC and non-OPEC last year, where we are today, and what is potentially ahead of us.
On the back of the decisions taken at the 171st Ministerial Conference on November 30, 2016, and the Declaration of Cooperation between OPEC and non-OPEC producers on December 10, 2016, as well as the high level of conformity to the voluntary production adjustments seen in January, market optimism significantly improved.
This can be observed by the fact that WTI and Brent combined net-long positions increased from close to 500,000 contracts on November 29, 2016, to 763,000 on January 3, 2017. This is an increase of 34%. They then moved higher to reach 921,000 contracts on February 21, an additional rise of 21%.
I have to underline that fundamentals in the oil market today would have been much different without these decisions that have now effectively been put into action. However, despite the expectation of improved levels of conformity in February, which have proven to be true, the market’s sentiment has turned, with the combined number of WTI and Brent net-long positions falling to 695,000 by March 14. This is a drop of 25% since February 21.
It is important to note that this softening of the market is not totally unexpected. Firstly, we are in a seasonally low demand period. Secondly, another seasonal trend is the shut-in of refinery throughput in the US. In January and February, 1 mb/d of throughput was shut down for maintenance. For these two months, this equates to approximately 60 million barrels.
Thirdly, in addition to these seasonal trends, in recent months we have also seen rising production from a number of non-OPEC nations, particularly in the US from tight oil. Moreover, we are seeing expectations for much greater quantities to come from non-OPEC in 2017, as reported by all major reporting agencies since the start of this year. For example, in the January 2017 OPEC Monthly Oil Market Report, non-OPEC supply was projected to grow by 120,000 b/d in 2017. In the March report, this number had risen to 400,000 b/d, driven mainly by estimations for rising growth in the US, as well as in Canada and Brazil.
And fourthly, we also need to recognize that the fourth quarter of 2016 was a period of significantly rising supplies. Non-OPEC increased its production by around 1.8 mb/d from September to November 2016, and over the same period, OPEC increased its production by about 500,000 b/d. This combined 2.3 mb/d expansion needs to be set against a global demand increase of just 200,000 b/d in the fourth quarter of 2016.
This supply growth is now working its way through the system. It will take time for the market to fully absorb. These developments have translated into stock levels remaining persistently high. The OECD stock overhang is currently at 282 million barrels above the five-year average, and in the US, crude stocks have reached a historical high of 533 million barrels that is mainly attributed, as mentioned, to lower refinery throughput coupled with increasing US production in a seasonally low demand period. However, outside the US, the global trend of destocking has been broadly on track.
In recent months, I have spoken to many financial market players active in the oil market, at events in both London and Houston. It was evident that there was a significant level of bullishness in the first two months of this year, with a general recognition that the rebalancing was occurring, but this was tempered somewhat by questions about the months ahead. These included questions such as: When can we expect to see a strong and declining trend in stock levels, particularly in the US? What can OPEC and non-OPEC nations participating in last year’s decisions achieve in the first half of 2017?
And what might happen in the second half of 2017? These are questions to focus the minds of this Committee. Moreover, we need to remember the role that these financial actors play in the oil market today. They play a major function, possibly a significant and determining factor, in the value of the oil sold daily. To highlight this we need to compare the size of the physical and the financial markets for oil. The size of the physical market today is 95 mb/d. Whereas if we take open interests, including all traders, the volume of the financial market for oil represents more than 60 times that of the actual physical market!
Mr. Chairman, Excellencies, distinguished delegates,
Conformity levels in January and February have been better than market expectations, but further advancements can, and need to be made. It is vital that we see the full commitment of each and every participating country. We expect 100% conformity.
This will be vital to help counter the market developments I have just highlighted, and the increasing volatility we have witnessed over the past couple of weeks. We still believe that the full and timely implementation of the decisions taken last year will see destocking accelerate by the end of the first half of 2017 with positive upshots and anticipated balanced market towards the end of the year. It is critical we keep our eyes on the goal. We need to ensure an acceleration of the drawdown of the stock overhang, and bring the necessary market rebalancing forward.
I cannot think anything to the contrary. We need to be patient, and demonstrate our strong will to allow our decision to run its course. I join the chair and the co-chair in urging all participants to meet their obligations under the very guiding principles of fairness, equity, transparency, and timeliness. Thank you for your kind attention. I will now give the floor back to my good friend, the Committee Chairman, HE Issam Almarzooq.
– Being an address delivered by HE Mohammad Sanusi Barkindo, OPEC Secretary General, at the 2nd Meeting of the Joint Ministerial Monitoring Committee (JMMC), 26 March 2017, Jumeirah Messilah Beach Hotel, Kuwait.