The need for dialogue between international stakeholders in the oil industry has “never been greater,” in order to tackle the current instability and supply overhang in the market, said OPEC Secretary General Mohammad Barkindo.
The crude market currently faces several ongoing challenges such as global economic uncertainty, excessive speculation and the role of financial markets, the impact of geopolitics, and environmental concerns, he said in a note ahead of the International Energy Forum in Algeria this week.
“It all points to the need to continually strive to develop and enhance dialogue and cooperation. There is evidently much for producers and consumers to talk about and cooperate on,” Barkindo added.
After crude prices tumbled from highs over $100 a barrel in 2014, several investments in the industry have been deferred or cancelled as a supply glut persists in the market.
“While we see some signs that supply and demand fundamentals may balance themselves this year, there remains a significant stock overhang that needs to be reduced,” Barkindo said.
A significant part of the additional supply has been contributed by non-OPEC members, the note said, noting that between 2008 and 2014, all of the supply growth of over six million barrels a day came from non-OPEC countries. In 2015, non-OPEC output grew by almost 1.5 million barrels a day (mbd), while OPEC output grew at around 1.1 mbd.
“Given these numbers, the stock overhang should be viewed as something both OPEC and non-OPEC producers, as well as consumers, tackle together. The market needs to see a continued drawdown in inventories that help prices to further recover and investments to return,” Barkindo said.
For oil, OPEC sees global demand increasing by around 17 mbd by 2040 to reach close to 110 mbd, with $10 trillion required for investment over the period.
“However, given the recent low price environment, it is clear that some of the necessary future investment is at risk,” Barkindo pointed out, adding that significant investment cutbacks are already being observed in the current oil market environment.
For example, global exploration and production spending fell by around 20 percent last year, and is anticipated to further drop by 27 percent drop in 2016, the report noted.
“This is a major concern for an industry that needs regular and predictable investments. New barrels are needed not only to increase production, but to accommodate for decline rates from existing fields,” Barkindo said.
The OPEC chief’s remarks came ahead of an informal meeting of the producer group’s members on the side-lines of the IEF, which has fueled speculation that a freeze deal may be imminent to boost oil prices.
Implementing an output cap, however, will not be possible without the cooperation of Saudi Arabia – the world’s largest oil producer – which has continued to pump high levels of crude despite low prices in a strategy to defend market share.
The kingdom produced a record 10.673 mbd in July, up from 10.55 mbd in June, amid seasonally high demand, official data showed.
As part of efforts to strike an OPEC deal to curtail supply and support prices, Saudi Arabia has offered to cut its oil production if regional rival Iran freezes its own output at 3.6 mbd, Reuters reported on Friday. Iran – which has been steadily increasing output since the start of the year – pumped 3.62 mbd in July, as the oil sector’s recovery from international sanctions appears to be plateauing.
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