Posted: 01 Dec 2016

OPEC set a new OPEC-14 production reduction target yesterday in Vienna of 32.5 MMb/d effective 1 January 2017 to accelerate the reduction in the world oil and try to rebalance of the oil market. Plans from the OPEC 171st meeting in Vienna will cut output by some 1.2 MMb/d, from the current 33.64 MMb/d.

OPEC also agreed at the conference to establish a High-level Monitoring Committee, consisting of oil ministers and assisted by the OPEC secretariat, to monitor the implementation of the agreement.

OPEC will institutionalize a framework for cooperation between OPEC and non-OPEC producing countries on a regular and sustainable basis.

Earlier reports from Reuters said that Saudi Arabia agreed to cut its oil output to 10.06 MMb/d, from 10.54 MMb/d.

When OPEC met in September, in Algiers, the OPEC Reference Basket stood at just above US$42/bbl. The agreement reached in Algiers was effective in arresting any further deterioration in prices and helped reduce relative volatility. In fact, the Reference Basket climbed to above $49 by mid-October.

However, by 14 November the price had fallen below $41/bbl., and price volatility is still a significant concern.

In the opening address, HE Al-Sada said: “This year we expect non-OPEC oil supply to contract by 800,000 b/d, compared to growth of 1.5 MMb/d in 2015. And in 2017, we only see a small growth in the non-OPEC supply of 200,000 b/d. World oil demand is expected to grow at healthy levels of around 1.2 million barrels a day in both 2016 and 2017.

“In addition, global economic growth forecasts remain reasonable for both 2016 and 2017, at 2.9% and 3.1% respectively. Nonetheless, as we have repeated on many occasions throughout the year, the large stock overhang continues to be a major worry.

It is vital that oil stock levels start to fall, consistently reducing the oversupply, prices should start to rise, bringing more stability to the market.

While urging focus on longer-term planning, Dr. Mohammed Bin Saleh Al-Sada, Qatar's Minister of Energy and Industry and president of the OPEC Vienna Conference reminded us is that firstly, this remains a growth business, with oil demand in OPEC’s 2016 World Oil Outlook reaching over 109 MMb/d by 2040, a healthy increase of over 16 MMb/d. And secondly, this growth will require significant investments in the upstream, midstream and downstream. Overall, estimated oil-related investment requirements are close to $10 trillion in the period to 2040.

“We need to ask ourselves whether the situation that has evolved over the past two years or so is putting this future at risk. Global spending on exploration and production investments fell in both 2015 and 2016, and some are now even talking about this continuing. The third year of investment falls would be unprecedented for the industry.” Stated Dr. Bin Saleh Al-Sada. 

This oil downturn may finally, slowly, be ending.