Q&A: Opec sec-gen stresses “unanimous decision” on cut

The Opec+ alliance this week agreed a surprise 2mn b/d cut in oil output quotas after its first in-person ministerial gathering in two and a half years in Vienna. Opec secretary-general Haitham al-Ghais spoke to Argus Middle East editor Nader Itayim after the meeting to explain both the rationale for the decision, and the unanimity for the move among the Opec+ group's 23 members.

Opec+ ministers took a decision to lower the group's overall production target by 2mn b/d from November. This cut in targets will extend through until the end of 2023. Can you give us the rationale behind the decision? Was it a decision that had every member's full support?

Absolutely. We discussed it at the post-meeting press conference. I believe there were eight ministers around that table. Believe me when I say we would have had all 23 ministers at that table if it was big enough. This was a consensus and a unanimous decision taken by the 23 countries that have signed on to the Declaration of Cooperation [DoC], which has been in effect since 2016. The rationale is very straightforward. As a group, we analysed the market. We looked at the technical parameters, and global economic indicators and I think it's no secret to anybody that we are facing macroeconomic headwinds. This is clearly evidenced by the actions taken by the central bankers all around the world, whether it is to tame inflation or stimulate economic growth. There is also a lot of uncertainty around events happening all over the world, especially when it comes to the global economic forecasts, which implies there will be an effect on oil demand forecasts. We have seen many reputable international institutions and agencies revising down their forecasts for oil demand. This is the reason why it was important, as ministers mentioned at the press conference, that we want to learn from lessons of the past. We wanted to be preemptive, proactive and take the necessary action to give guidance and clear direction to the market. This is the rationale, it's very simple and straightforward.

Earlier this year, the focus was very much on the supply side. Now, more recently, the conversation has turned to the demand side. As you mentioned, demand side concerns were at the forefront of the Opec+ group's decision. Can you be a little a little more specific about the pain points that Opec+ highlighted regarding oil demand as we go into next year?

For us at Opec, the forecasts for oil demand growth at the beginning of the year were around 4.1mn-4.2mn b/d year on year. And of course, as the year has gone by, and we have seen, for example, the extended lockdowns in China, the economic headwinds we talked about, there have been implications [for demand] and our forecasts for demand growth have been revised downward all throughout the year.

Last month's Opec report showed demand growth of 3.1mn b/d. That's a significant downward revision compared to the forecast at the beginning of this year. Therefore, we feel that with the coming economic headwinds in the fourth quarter, and at the beginning of next year, this will possibly be further cause for demand reduction. There is significant uncertainty and volatility which we have talked about many times.

So again, we decided to be preemptive and proactive, and give a clear direction and signal to the market. When Covid caused the collapse in demand in 2020, the group reacted in a responsible manner and adjusted production by almost 9.8mn b/d. So this is not something new. Since the creation of Opec, we've been objective and transparent, providing clarity and stability to the market. Again, this was a decision based on the collective view and unanimous decision of the 23 countries in that room.

You mentioned the volatility in the market – this is something we first began hearing about a few months ago. Where are we now on that front relative to then?

I spoke about this as well when I first took office on 1 August. Many ministers have also spoken about this, and we still feel there is volatility and uncertainty. This will likely continue to be there. We feel that still there is a lot of volatility and lack of clarity on the economic front globally, not just in Europe or the US. Central banks are reacting, taking further action — it's more rapid, it's more frequent. Volatility affects investors' appetite and therefore Opec+ decisions should be viewed as a source of stability and clarity in terms of making sure there are adequate supplies to the global market.

We are not curtailing supplies — we actually added supplies of up to 5mn b/d last year in monthly increments as demand has improved since 2020 with the recovery from Covid, with the vaccination rollout globally. And let's be frank, we're still not out of the woods with Covid. I've said this in earlier interviews as well. Jet fuel demand has still not fully recovered, road transportation fuel demand has still not fully recovered. So we still feel there are a lot of headwinds for demand, and hence when we take decisions like this, it's a purely technical decision that's based on supply- and demand-related fundamentals.

With this decision, Opec+ has provided guidance until the end of next year, 2023. But what happens if the situation changes, fundamentals change, either on the supply or demand side? Opec+ always talks about being flexible – what would that look like in 2023?

Flexible is the key word. Agile, too. And you've seen it over the past three years. How flexible we've been, how agile we've been, whether production was being adjusted upwards or downwards. As has been reiterated by many of the ministers, we're still in very fluid and uncertain times. So definitely yes, we believe that the arrangement that was agreed by the 23 countries is very flexible.

The mandate has been given to the [Opec+] Joint Ministerial Monitoring Committee to meet, albeit less frequently, every two months now instead of every month. But it has the mandate to call for an emergency meeting whenever necessary. And this is the beauty of this arrangement. That we are there, constantly monitoring through our technical bodies supply, demand, global economic headwinds, or macroeconomic factors. All of this is constantly being monitored in order for the ministers to take the right decisions.

Finally, this week saw the first in person meeting of Opec+ ministers for two and a half years – how does it feel to have everybody back in Vienna?

It was really great to get everybody back in Vienna in person. It was one of my first objectives as secretary-general to bring everybody back and I've been working on it since day one. Finally, we made it happen. Now I just hope we won't have any more relapses with Covid or any other surprises that would prevent people from coming back.