OPEC committee sees no reason to extend or deepen production cuts yet

As expected, the monitoring committee overseeing the OPEC/non-OPEC output agreement has said that it sees no need to recommend deeper cuts or any extension of the 1.8mn b/d production cut deal which expires in March 2018, saying it is still too early to make any decision. However, it has added ‘a wrinkle in its compliance calculations’ – monitoring crude exports – reports S&P Global Platts.

While production, as measured by six independent secondary sources, including S&P Global Platts, will continue to be the primary metric by which compliance with the deal is evaluated, ministers on the monitoring committee said they will now incorporate export data to bolster trader confidence that the cuts are, in fact, lowering supplies to the market.

According to S&P Global Platts, the discussion about exports came as ministers were reportedly frustrated by the production cut agreement’s inability to stabilise prices in the $55–$60/b range that the coalition is targeting, despite strong overall compliance with quotas, which the committee pegged at 116% for August. ICE Brent futures were trading at $56.35/b after the committee meeting in late September, having slumped below $45/b in June 2017.

Some deal participants, even as they cut production at the wellhead, have continued to supply the market with substantial volumes, drawing from their barrels in storage. Meanwhile, some countries continue to underperform on their quota compliance, with others overcomplying to make up the difference.

OPEC Secretary General Mohammed Barkindo praised OPEC members Saudi Arabia, Angola and Equatorial Guinea, along with non-OPEC Azerbaijan, Brunei and Sudan for their strong compliance and ‘sacrificing in the interests of all’. As for the other members, Barkindo had a pointed message, according to S&P Global Platts. He stated: ‘The numbers show that had every participating country conformed fully since the beginning of the declaration of cooperation the market would have already returned to balance.’

The next full OPEC/non-OPEC meeting is scheduled for 30 November 2017 in Vienna.