Oil producers must review and adapt their collective strategies to successfully navigate a challenging global energy market, senior officials told an audience at the opening of ADIPEC 2018.
Speaking during a panel discussion in ICC Hall, at ADNEC on the first day of the exhibition on Monday, officials said new strategies will be required to bring global inventories into balance.
H.E. Suhail Mohammed Al Mazrouei, UAE Minister of Energy and Industry, said the challenges that OPEC faces over the next 12 months would require a review of existing plans.
“We are looking at the data and we are seeing a very dynamic oil market,” he said. “We are not ready to overreact as we have gone through a turbulent market.”
There will be discussions on what the strategy ahead should be during an upcoming meeting of OPEC and non-OPEC members in Vienna in December, he said during the forum titled: Shifting Dynamics of the Global Energy Landscape.
“We need to think in the short, medium and long-terms. We are not going to oversupply the market if it doesn’t require it,” he said.
H.E. Khalid Al Falih, Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, said any decisions made on cutting supply would be based on the needs of the market.
“We are not in the business of pinpointing a price,” he said.
“We have been talking about the price gyrations. What we are trying to do at the next conference when we meet in Vienna is look at the fundamentals and signal what the trend is, we can’t change the past. We have been working over the last two years to bring inventories into balance but there are way too many variables with short-term trends that continue for the long-term.”
Oil producers were going to do everything they could to keep inventories and supply and demand fundamentals close to balance, he said.
Al Falih believes the markets overreacted following the reduction in output from OPEC members as well as the announcement of sanctions against Iran.
“Fear and anxiety gripped the market so we want to assure it gets back into balance,” he said.
Saudi Arabia may cut output by 500,000 to 1 million barrels a day.
“We don’t want inventories built up and we are seeing that is starting to happen. The technical analysis OPEC makes is that there will be a reduction for October approaching 1 million barrels but that is based on assumptions that might change. The consensus is that we need to do what we have to balance the market and if that requires cutting we will do that. Otherwise three digit prices will be uncomfortable and we don’t want that.”
H.E. Mohammad Barkindo, Secretary General of OPEC, said many factors were not under the control of the organisation.
“We can do what we can with non-OPEC members but sometimes these outside factors tend to distract us,” he said.
“2019 is going to be a challenging year and we all hope we don’t go back to two or three years ago. But I think the industry has done well to navigate through this cycle.”
All three speakers praised the cooperation OPEC and non-members achieved in settling the markets after spikes in oil price three years ago.
Estimates on the current demand will have to be revised as the global economy experiences a deceleration, said Barkindo.
“The non-OPEC supply in November last year was projected to grow at 0.9 million barrels a day but today it is
north of 2 million barrels per day. Because the market is so dynamic what worked two to three years ago might not work next year,” he said.
When asked about the impact of the US decision to impose sanctions on Iran, Al Mazrouei said although geopolitics was always in the equation, OPEC had to make decisions focused on the what was best for the industry.
“The oil industry is driven by sentiment in the financial markets and then the fundamentals,” said Al Falih.
OPEC is essential for world oil and energy markets and has an important role to play for the global economy, he said.
As central banks and the IMF oversee financial markets so too do the oil and energy markets require a “central bank”; a role that OPEC plays and will continue to play.
“We oversupplied the market in September to lubricate the global economic system,” said Falih.
“I can assure you that in policy circles in Saudi Arabia there is no decision to remove OPEC,” he added.
Al Mazrouei, concluded the discussion by adding that there was growing cooperation between Saudi Aramco and ADNOC to improve efficiency and reduce costs.
“I’m optimistic that in the future that oil companies will work with technology partners and add value and we will reap the benefits,” he said.