PETROANALYSIS || ARTICLE

New global oil order looks for market stability.

Published on

April 22, 2020

in

Article by

Mazhar Al-Shereidah

The 12 April 2020 marks the founding of the New International Petroleum Order, NIPO: made up of producers, exporters, consumers, its most emblematic organizations (OPEC plus and IEA); negotiated by Saudi Arabia, USA, Russia, and immediately confirmed by the G-20.

Only the resolute involvement at the Heads of State level could close the distance between apparently irreconcilable positions, and break conceptual dogmas that for more than half a century had impeded price from being determined by the competition between all crudes. These privileges came to an end.

Effectively the demand destruction, announced but ignored, collided with the brutality of the pandemic, ignoring frontiers and nationalities. The world economy entered into a state of paralysis and with the aim of gradually returning in April 2022 to the desired stability, a substantial proportion of supply has to be shut in… and the closure has to be shared fairly. It is worthy of mention that the principle of pro rata acquires the rank of universal compromise, even though not with the desire to conserve a scarce resource but to provide a floor to a versatile resource, the reserves of which have reached historical maximums through conventionalization.

Operationally, time is needed to put these production cuts into place as required technically. Inventories have grown to historical maximums, attracted by sweetened prices with important discounts, which explains why quotations have continued their tendency downwards. This awakens solid fears that NIPO does not augur an immediate rise in prices.

This uncertainty is the golden rule of the trilateral agreement because it does not establish as an aim a fair price that is interpreted as being more in the field of ethics rather than in that of the economy. The volume of world demand post-pandemic will be supplied by a corresponding offer at market price.

Stability rather than volatility.

Share this article