The members of the Organization of Petroleum Exporting Countries lost a collective $1 trillion in foregone revenues during the last crisis in 2015 and 2016, the cartel’s secretary-general said at the Fourth International Petroleum Summit in Nigeria. With the Covid-19 crisis hitting the oil industry a lot harder than the 2014-2016 crisis, chances are the losses that OPEC producers suffered last year would be even greater than $1 trillion, but these are still being calculated.
“In OPEC, we were stunned by things happening that we never imagined possible. On April 20, 2020, WTI went negative for the first time in history, with prices plummeting to –$37 per barrel. Sellers were paying buyers to lift their crude,” Mohammed Barkindo said, as quoted by Nigerian Leadership.
“In response to this unprecedented situation, OPEC knew it had to act. Thankfully, we did not need to reinvent the wheel. We turned to the mechanism that had helped us emerge out of the 2015-2016 oil market downturn: the Declaration of Cooperation (DoC). It was an effort to move from crisis to opportunity,” he said.
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OPEC’s historic oil production control deal was indeed one of the factors, coupled with the quick recovery of demand for oil in China, that arrested the freefall of oil prices last year, helped draw down excessive global oil inventories, and now, is leading prices to two-year highs.
OPEC is now easing the cuts it agreed to last year, which will add some 2 million barrels daily to global supply. Traders, however, are not worried: demand is improving faster than most expected. What’s more, despite earlier forecasts, it might never rebound to pre-pandemic levels, the IEA now sees oil demand returning to these levels within a year.
How much money OPEC lost in foregone revenues from the pandemic crisis is yet to be seen, but the amount will certainly be substantial.
By Irina Slav for Oilprice.com
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Moreover, I estimate OPEC’s losses in 2020 as a result of the pandemic at no more than $620 bn of which Saudi Arabia accounted for an estimated $95 bn.
Still, it is a huge loss to the majority of OPEC members whose budgets depend on the oil revenue to the tune of 85%-90%. In fact, Iraq’s dependence is even higher at 95%.
OPEC+ alone stood between the pandemic and a complete collapse of the global oil market and the oil industry using its massive production cuts to stabilize the market and bolster oil prices. As a result, it emerged from the pandemic as the most powerful player in the global oil market.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London