Chineme Okafor in Abuja
The Organisation of Petroleum Exporting Countries (OPEC) has disclosed that up to two-third of the value of oil prices were wiped out by the novel Covid-19 in the first quarter of 2020.
The OPEC also said that the current situation in the oil industry will affect the global economy which is expected to record a decline in growth rate. It thus called for concerted efforts to ensure that the industry does not further deteriorate.
OPEC’s latest position on the oil market was contained in a statement it presented at the recently concluded International Monetary Fund (IMF) and World Bank Spring Meetings. The meetings were done virtually.
In the statement, OPEC’s Secretary General, Dr. Mohammed Barkindo stated that OPEC was ready to, “spearhead the joint efforts in re-establishing healthy oil market fundamentals and restoring balance to the oil market in support of the global economy.”
Barkindo noted that the impacts of the Covid-19 on the oil industry saw to prices significantly dropping in late March 2020 to reach the lowest levels in nearly 18 years.
According to him, OPEC estimates that around $15 trillion, or about 17 per cent of global Gross Domestic Product (GDP) have been spent by countries across the world on fiscal and monetary stimulus, including guarantees to keep their economies afloat.
This, he added constituted the largest stimulus efforts ever undertaken by countries of the world.
Barkindo, explained that while the global oil market showed some relative stability and ended 2019 on a positive note, despite economic headwinds and high uncertainties regarding ongoing trade disputes, Brexit and geopolitical developments throughout the year, the expected pickup in 2020 was cut short by Covid-19.
“At the beginning of 2020, there were signals that the economy would rebound from the slowdown in the second half of the previous year, with global economic activity, including global trade and industrial production, expected to pick up.
“However, instead of the expected pick-up in activity in 2020, the global economy and, consequently, the global oil market are experiencing one of the most severe crises in recent history, caused by the Covid-19 pandemic,” Barkindo said.
He said countries around the world have virtually shut down, imposing travel restrictions and mandating social-distancing measures in an effort to contain the pandemic and that these measures have, “not only severely affected global economic growth, they have also caused a historic demand shock in the oil market, which has led to extreme volatility in oil prices.”
“Concerns about this grave oil market imbalance, which could lead to a large build in global oil stocks in coming months, led to oil prices dropping significantly in late March to reach the lowest levels in nearly 18 years. Oil prices lost about two-thirds of their value over 1Q20,” he noted.
Barkindo, explained that with the market conditions and massive oil demand destruction so far, “comprehensive international cooperation is called for to stabilise the global oil market and prevent extensive and lasting damage to the oil industry.”
He noted that the world’s economy is forecast to face a severe recession in 2020, declining by 1.1 per cent.
“The underlying key assumption for the 2020 GDP growth forecast is that the impact of Covid-19 related developments outside China will continue well into 2Q20. Therefore, most regions are forecast to see a slowdown through 2Q20, recovering only towards the second half of 3Q20,” he further explained, while stating that the tremendous imbalance in oil markets has taken a significant toll on global economic growth.
According to him, a recovery in the oil sector may provide further support to global economic development, hence the need for concerted support for the industry.
“For 2020, Covid-19, the ensuing global economic recession and oil demand destruction are forecast to impact world oil supply. Oil companies announced reductions in planned capital expenditure amid sharp declines in oil price levels.
“Global E&P spending for 2020 is now estimated at $450 billion, the lowest level in 13 years. Before the Covid-19 pandemic, upstream investment was expected to remain flat year-on-year.
“OPEC would like to take this opportunity to reaffirm its long- standing commitment to supporting oil market stability for the mutual benefit of consuming and producing nations, thus contributing significantly to the health of the global economy.
“The historic success of the Declaration of Cooperation has underscored the organisation’s leadership in ensuring a stable and constructive environment in which future energy requirements can be met.
“Given the current global crisis brought on by the Covid-19 pandemic, the need for international coordination has become ever more apparent. OPEC reiterates its commitment to spearhead the joint efforts in re-establishing healthy oil market fundamentals and restoring balance to the oil market in support of the global economy,” Barkindo stated.