Tuesday, 16 July 2024

Saudi Minister of Energy: OPEC+’s more accurate predictions compared to others are due to focusing on market fundamentals and leaving politics out of decision-making


اقرأ المزيد

In light of recent independent media reports that OPEC+ oil market analysis and forecasts have proven to be correct and more accurate than those of other sources.
SPA had this interview with His Royal Highness Prince Abdulaziz bin Salman bin Abdulaziz Al Saud; Minister of Energy to shed light on this matter
Q1: What do you think are the main reasons for OPEC+ predictions of the oil outlook being more accurate than others?
As I have emphasised multiple times, in OPEC+ we leave politics out of our decision-making process, out of our assessments and forecasting, and we focus solely on market fundamentals. This enables us to assess situations in a more objective manner and with much more clarity and this in turn enhances our credibility. And examples abound. At the start of the Ukraine crisis, some predicted large supply losses of more than 3 million b/d which caused panic and contributed to extreme volatilities. At that time, many accused OPEC+ of being behind the curve and not responding to a crisis in a timely manner. But these projected losses did not materialise. Also, back in October when OPEC+ took the decision to cut output, it was heavily criticized. OPEC+ decision was described as ‘very risky’, ‘unfortunate’, and there were suggestions that it was driven by political motivations and that the decision would tip the global economy into recession and would cause harm to developing countries. Again, in retrospect, the OPEC+ decision turned out to be the right one for supporting the stability of the market and the industry.
The problem with politicizing statistics and forecasting and using them to discredit OPEC+ and its stabilizing role, is that it agitates consumers and creates confusion in the market and gives rise to anomalies and misguided interpretations, all of which contribute to unnecessary volatility.
There is also inherent serious inaccuracy in some forecasts. OPEC+ has maintained its demand figures for 2021 while some others have grossly and consistently underestimated historical and current demand resulting in discrepancies often referred to as “the puzzle of the missing barrels”, and they were eventually forced to resolve these discrepancies in early 2022 by adjusting demand upwards. It would not come as a surprise if the issue of missing barrels reemerges in early 2023, keeping up with the same pattern of underestimating demand yet again in 2022.
At the end of the day, playing politics with statistics and forecasting and not maintaining objectivity often tend to backfire and result in loss of credibility.
Q2: Proactivity and pre-emptiveness have become central to OPEC+ approach. Will this continue in 2023?
In the last few years, the market has been subject to some extreme shocks and if it were not for the proactive approach and the pre-emptive steps that OPEC+ adopted, these shocks would have created havoc in oil markets like what we saw in other energy markets even before the crisis. In face of a wide range of uncertainties, OPEC+ has no choice but to remain pro-active and pre-emptive and this is not an easy task especially that the market has the tendency to overreact to news in both directions and we have seen many ill-advised interventions in energy markets. But again, the fact that OPEC+ can assess markets in an objective manner, its proactive approach and the cohesion within the Group put it in a better position to contribute to a more stable market.
Q3: In a recent interview, you emphasised the credibility aspect. Can you elaborate more?
In all economic spheres from financial to commodities, credibility is a key ingredient to building the trust and confidence that lead to the stability of markets. Without credibility, markets become more volatile and less attractive for all types of participants. The oil market is no different. As OPEC+, we will not hesitate in handling any market situation. The more credible we are, the easier our task is in bringing stability to markets, and the more stability we bring, the greater our credibility is cemented and recognized. This is a virtuous cycle that OPEC+ intends to maintain through objective and high-quality analysis and through keeping its focus on market fundamentals.