The fourth meeting of the OPEC and non-OPEC Joint Ministerial Monitoring Committee held on 24 July in St. Petersburg reviewed progress on the November agreement to cut output by 1.8mn bpd, stressing that all participating producing countries must promptly reach full conformity, with ‘room for improvement’ in some participating countries
The committee noted that the oil market is making "steady and significant progress towards rebalancing" and recommended keeping the extension of the agreement as an option “should further action be required for the stabilisation of the market.”
A particularly positive development was that Nigeria voluntarily agreed to implement similar OPEC production adjustments as soon as its recovery reaches a sustainable production volume of 1.8mn bpd.
Russian Energy Minister Alexander Novak, who hosted the meeting, said an additional 200,000 bpd of oil could be removed from the market if there is 100 per cent compliance with the OPEC-led deal.
HE Khalid A Al-Falih, Saudi Arabia’s Minister of Energy, Industry & Mineral Resources, noted some positive trends, including the pick up in global demand and the reverse in the build-up in global inventories. Global stocks had fallen by 90mn bbl in the first six months of the year, but were still 250mn bbl above the five-year average for industrialised nations, which is the target level for OPEC and non-OPEC members. “It is only a matter of time before inventories return to more normal levels,” he said.
He acknowledged however that the market had “turned bearish”, with compliance issues, increased Libyan and Nigerian production and US shale forecasts driving this behaviour.
Prices have fallen below US$50 a barrel in recent weeks, declining by eight percent quarter-on-quarter in Q2 2017, amid higher production in the USA, as well as from Libya and Nigeria. The latter two countries have been exempt from the OPEC/non-OPEC agreement due to political unrest.
Prices rallied following the meeting and Al-Falih’s announcement that Saudi Arabia would limit its crude exports to 6.6mn bpd in August, almost one million bpd below the levels of a year ago. Reports of falling US crude stockpiles also served to bolster the market.
However Jadwa Investment comments in its latest quarterly oil market update, “Any sizable rises in oil supply are likely to be more sharply felt than the potential upside of demand. In particular, doubts remain over OPEC’s ability to, firstly, maintain discipline amongst members and, secondly, prevent sizable increases in supply from Libya and Nigeria. In addition, as the recovery in US oil production continues, with US shale oil supply expected to achieve an all-time record high in the next few months, the risk to oil prices remains firmly skewed to the downside.”
