Mohammed Barkindo: If you sanction an oil producing country and target its oil, you are sanctioning the global community
Cooperation between OPEC and non-OPEC countries, foremost Russia, has lasted for three years already and in this time the oil market has seen shakeups that have threatened to cause a split within OPEC and jeopardized the fate of the OPEC+ agreement to curb oil production in order to balance the market. OPEC Secretary General Mohammed Barkindo spoke with Interfax on the sidelines of the 16th annual meeting of the Valdai Club in Sochi about how decisions are made and OPEC‘s position regarding geopolitical events that have hit oil markets.
Question: Last weeks has seen unstable geopolitical situation in the Persian Gulf. Experts say that it could result in a deficit of light oil on the market. What do you think about it? Is production increase by other members of OPEC+ countries being discussed? What spare capacities do they have in short-term and long-term periods?
Answer: The world needs peace. The world needs stability. For us, OPEC, working with non-OPEC partners, like the Russian Federation, we are seeking to maintain stability on the world market on a sustainable basis. Because this is what producers need, this is what consumers need. But we are also operating in an environment where factors outside of supply and demand sometimes impact our work. All we can do as a non-political organization is to continue to impress on our leaders to make sure that the situation does not deteriorate to the extent that we are unable to make decisions on their behalf.
Q.: The Joint Ministerial Monitoring Committee made a decision in Abu-Dhabi to actually to decrease production by 100%-compliance for countries which under-comply their obligations. What countries except Iraq and Nigeria promised to do it? What was the aim of this decision? Is it to cut oil production to 2 million barrels per day compared to October 2018?
A.: The meeting in Abu Dhabi last month was the meeting of the JMMC. It supervises, monitors the implementation of the supplier adjustments. It is not a decision making body, so no decisions were taken. We reviewed the conformity levels, the performance of each participating country, and pleasantly came to the conclusion that the level of performance, of conformity was over 100%, was 136% or so, which commendable.
And fr om the inception of the implementation of the declaration of cooperation in January 2017 to date, the level of performance or conformity has been well above 100% on average. This is very positive news. It also shows the continued commitment of all the participating countries to do what it takes to ensure that we do not allow stocks to rebuild, we do not allow the market, if you like, to go into this equilibrium through stock movements.
We will continue to monitor the market going forward and we have got a high level of reassurances by participating countries that they will continue to comply with the obligations.
Q.: And what decrease in supply do you expect based on such measures? Broadly speaking does the global oil market still need decrease in supply after incidents in Saudi Arabia? What do you think?
A.: The level of conformity for August numbers, as I said, was 136%, meaning we are doing much more than 1.2 million barrels a day that we agreed upon in July this year up to March 2020.
The incident in Saudi Arabia was a shock to all of us, to the global community, and we are glad that is behind us, they have restored the supplies fully to pre-attack levels.
The ongoing liberalization of the market is a continuous process. We have never declared the mission accomplished, because a number of factors in the equation are continuously in motion and are not in our control. But working together with the Russian Federation and other non-OPEC producing countries, we have demonstrated beyond any reasonable doubt our joint, common resolve to ensure that this relative stability is sustained.
Q.: You also said in Abu-Dhabi that the JMMC is set to discuss Vision-2020. What main trends did you discuss in terms of supply and demand? And what main consequences do you envisage? What possible oil surplus do you see on the market due to a significant increase in American oil supplies?
A.: What we did in Abu Dhabi in addition to reviewing the supply and demand, we also looked at various projections for 2020, and these are preliminary projections. As we go into Q4, wh ere we are today, and towards our conference in December, the 2020 picture will be much clearer. Hopefully, in December we would be able to look at it holistically, with all data available at our disposal then and various projections of secondary sources and take appropriate decisions.
Q.: OPEC+ members have recently been discussing a possible change in stocks metrics. Is it right to understand that rendering the level of stocks to the level of 2010-2014 will evoke the need to cut oil production even more?
A.: We have been discussion internally the variety of metrics to assess the balance of the market. We have been using the five-year average. In addition to that we are comparing the five-year average with other metrics, including 2010-2014. But at the moment it is for a comparative analysis, not for the decisions-making.
Q.: Earlier countries under US sanctions, such as Iran and Venezuela, tried to criticize the OPEC sanctions. Their request was not satisfied. Iran blamed OPEC of political involvement and predicted the end of the OPEC group. Do you consider any measures to resist this?
A.: I can’t remember what you say that these countries criticized OPEC more. On the contrary we have made our views that sanctions distort markets. Sanctions at the end of the day are counterproductive. Because it does not only belong to the producing countries, it belongs to the consuming countries. If you sanction an oil producing country and target its oil, you are sanctioning the global community, it is not only that country. We, OPEC, are not a political organization but we know that these sanctions do not work, they distort markets and that they suit the interests of nobody. We will continue to urge our political leaders to do whatever is possible to minimize thee political tensions, to continue to insulate OPEC from geopolitics, as well as depoliticize oil.
Q.: In July, the new Charter of OPEC+ was set. What countries have already validated it? And when will all OPEC+ members, especially Russia and Saudi Arabia as key players, validate it?
A.: The Charter OPEC+ was signed by all the 24 countries in the Declaration of Cooperation on July 2. For us, we have the charter in place. We are now consulting on a work program for the charter and hopefully an inaugural ministerial session at some point. Signatory countries have taken the charter to various capitals to go through their domestic processes. Each country has its own domestic processes. That is separate from what we have done.
Q.: You have called to a dialogue with oil consumers. In what form do you see this dialogue? How it could be formalized?
A.: At the moment, OPEC has the following energy dialogues. We have OPEC-China energy dialogue. We have OPEC-India energy dialogue. We have OPEC-EU energy dialogue. These are all major energy consuming nations of the world.
Because we, as producers of oil, have invested interests in making sure that this energy source, oil, makes competitive with other sources of energy in a foreseeable future. Therefore we would like consumers to continue to have absolute confidence in our ability to remain their reliable and dependable suppliers of oil.
In addition to that in this «energy transition», the future of oil is continuously being questioned. We need to have this dialogue with consuming countries to reassure them of security of supplies, to reach conclusions and probably decisions with them on how on improve the environmental credentials of oil, how to decarbonize oil. We have a lot in common and we have found through these various dialogues that we are all at the same of day in same basket.
Q.: You have very good relationships with Mr. Putin. Are you going to meet with him and what you are going to discuss?
A.: I think you have to pose this question to the Kremlin. They decide and organize his meetings. I look forward to meeting with him at the Russian energy week in Moscow. We find the Russian energy week extremely important for OPEC – we have been participants and we intend to continue to participate - and we continue to value the leadership that president Vladimir Putin has been providing not only on the global energy scene but globally. Thanks to him our relations with the Russian Federation have grown from strength to strength in the last several years, and we are look forward to continuing this relationship.