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A handout photo released by the Saudi Press Agency (SPA) on April 9, 2020 in Riyadh shows Saudi Energy Minister Prince Abdulaziz bin Salman al-Saud (R), chairing the virtual extraordinary meeting of the virtual extraordinary meeting of Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC countries, amid the novel coronavirus pandemic. (Photo by – / SPA / AFP) / ==RESTRICTED TO EDITORIAL USE – MANDATORY CREDIT “AFP PHOTO/ HANDOUT/ SAUDI PRESS AGENCY/SPA ” – NO MARKETING – NO ADVERTISING CAMPAIGNS – DISTRIBUTED AS A SERVICE TO CLIENTS (Photo by -/SPA/AFP via Getty Images)
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Members of the Organization of the Petroleum Exporting Countries and their allies held a regularly scheduled monthly joint committee meeting on Thursday that wasn’t expected to offer any surprises, but nevertheless has made a convincing impression on those doubting the oil producers’ commitment to fully comply with their agreed output cuts.
The allied producers, collectively known as OPEC+, “gave the impression that it does not sweep troubles under the carpet,” said Bjornar Tonhaugen, head of oil market at Rystad Energy, in emailed comments. “The alliance is clearly upset at the sub-compliers and showed that it is not willing to tolerate their lack of action for much longer.”
The Joint Ministerial Monitoring Committee of OPEC+ left its current production quotas in place. Under that agreement, it pared record production cuts of 9.7 million barrels per day to 7.7 million barrels per day starting in August, and also said at the time that countries that failed to previously meet their quota limits would need to compensate for their overproduction.
The most notable change Thursday was the committee’s announcement that it would recommend that OPEC approve an extension of this compensation mechanism, which was set to end in September, until the end of December.
However, oil market traders and analysts couldn’t help but notice the strong language the committee used in its opening and closing statements and press conference.
In an opening statement, Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman, who is also chair of the Joint Ministerial Monitoring Committee, emphasized the need for all countries to fully conform to their production adjustments.
“Not fully complying, and then compensating, should not become the norm,” he said. “Full compliance is not an act of charity. It is an integral part of our collective effort to maximize the interest and gains of every individual member of this group.”
Following the committee’s closed door meeting, the JMMC emphasized in its closing statement the “critical importance” of fully adhering to production cuts and compensating for overproduction “as soon as possible.” It also said that it is aware that an increase in COVID-19 cases has appeared in some countries. In this environment, the committee said it’s important to be “pro-active and pre-emptive” and recommended that participating countries be “willing to take further necessary measures when needed.”
That leaves open the possibility for OPEC+ discussions, outside of the monthly JMMC meetings, before the official OPEC Conference and OPEC+ gatherings that will be held on Nov. 30 and Dec. 1.
Referring to OPEC+, Prince Abdulaziz said during the question and answer session with journalists: “This alliance is here to stay.”
“The clear message of the day was that Saudi Arabia is no longer willing to act as the balancer, cutting its production more deeply in order to compensate for others’ overproduction. Nor is it willing to allow OPEC+ participants to spread out production cuts on their own initiative, overproducing one month and compensating another,” said Cailin Birch, global economist at The Economist Intelligence Unit. Saudi Arabia has “asked for the complete buy-in of its OPEC+ partners in no uncertain terms.”
Birch told MarketWatch that she believes the United Arab Emirates was the “main target of these remarks, even though it was not specifically named.” Several countries, including Iraq and Nigeria, had been overproducing previously, “but have made progress to adjust for this in recent months,” she said. “Of Saudi’s main allies, only the UAE continues to steadily exceed its output quotas.”
The comments by Prince Abdulaziz helped to lift oil prices Thursday. “In this sense, the comments have already achieved one intended target,” said Birch. October West Texas Intermediate crude CLV20, +2.19% settled at $40.97 a barrel, up 81 cents, or 2%, on the New York Mercantile Exchange, while November Brent crude BRNX20, +0.02% ended at $43.30 a barrel, up $1.08, or 2.6% on ICE Futures Europe on Thursday.
Still, “it remains to be seen if real production volumes will fall as quickly as Saudi Arabia would like them to, which could set off further diplomatic clashes in the coming months,” Birch said.
