The Joint OPEC and non-OPEC Ministerial Monitoring Committee (JMMC) agreed in Kuwait to review whether their deal of production cuts should be extended for another six months after reporting a conformity of 94 per cent so far this year, OPEC said.
OPEC and non-OPEC participating countries' conformity of 94 per cent is an increase of 8 percentage points over the January 2017 performance, OPEC said in a statement. “This demonstrates the willingness of all participating countries to continue their cooperation.”
OPEC and 11 other leading producers including Russia agreed in December to cut their combined output by almost 1.8 million barrels per day (bpd) in the first half of the year. The original deal was for six months starting Jan. 1, with the possibility of a six-month extension.
The December accord, aimed at supporting the oil market, has lifted crude to more than $50 a barrel. But the price gain has encouraged U.S. shale oil producers, which are not part of the pact, to boost output, causing renewed pressure on oil prices and stock inventories.
The JMMC pointed out factors such as low seasonal demand, refinery maintenance, and rising non-OPEC supply that have slowed down the positive impact of the production adjustments on inventory drawdowns. At the same time, the liquidation of positions by financial players in the market was also observed.
The committee’s statement said that it felt that the end of the refinery maintenance season and a noticeable slowdown in the US stock-build, as well as the reduction in floating storage, will support the positive efforts undertaken to achieve stability in the market.
“In view of the above, the JMMC requested that the JTC with the OPEC Secretariat review the oil market conditions and revert to the JMMC in April 2017 regarding the extension of the voluntary production adjustments as stipulated in the Declaration of Cooperation, in order to ensure market stability,” the OPEC statement said.
Chairman of JMMC, Issam A. Almarzooq, Minister of Oil and Minister of Electricity and Water of the State of Kuwait, said stocks remain high over the past couple of weeks, particularly in the US, where a seasonally rising trend has hit new historically high levels, he said, adding that some traders also liquidated their long positions (causing downward pressure on prices) and Brent prices have dropped from the mid-50s to the low-50s. Volatility has also increased.
“While investments may be returning in some of the industry’s short-cycle projects, there is little investment going into the long-cycle projects that are the baseload of the industry,” he said.
Almarzooq said Saudi Arabia and Angola carried out production cuts beyond expectations, but other countries had to take their conformity to the agreement more seriously.
“We need to see conformity across the board. We assured ourselves – and the world – that we would reach our adjustment to 100 per cent conformity,”Almarzooq said.