OPEC celebrates supply cap deal compliance, analysts say not out of woods yet

The Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) stated that based on the Report of the Joint OPEC-Non-OPEC Technical Committee (JTC) for the month of August 2017, OPEC and participating Non-OPEC producing countries recorded the highest conformity ever with their voluntary adjustments in production, achieving a level of 116 percent.

The JMMC was established following OPEC’s 171st Ministerial Conference Decision of 30 November 2016, and the subsequent Declaration of Cooperation made at the joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting held on 10 December 2016 at which 11 (now 10) non-OPEC oil producing countries cooperated with the 13 (now 14) OPEC Member Countries in a concerted effort to accelerate the stabilization of the global oil market through voluntary adjustments in total production of around 1.8 million barrels per day.

The resulting Declaration, which came into effect on 1 January 2017, was for six months. The second joint OPEC-Non-OPEC Producing Countries’ Ministerial Meeting, held on 25 May 2017, decided to extend the voluntary production adjustments for another nine months commencing 1 July 2017.

At its 5th meeting, which took place last Friday, in Vienna, Austria, the JMMC welcomed the participation of Iraq, Libya and Nigeria, and the reaffirmation of their commitment to work closely with other participating producing countries to ensure the success of the Declaration of Cooperation.

It was stated that In August 2017, the OPEC and participating non-OPEC producing countries achieved an excellent conformity level of 116%, the highest level since the start of the Declaration of Cooperation.

“This again underscores the resolute commitment of participating producing countries to cooperate towards the rebalancing of the market. The JMMC expressed satisfaction with the overall results and steady progress made towards full conformity with the production adjustments, and encouraged all participating countries to continue on the path towards better conformity, for the benefit of producers and consumers alike,” said a release from OPEC.

The JMMC noted that while some participating producing countries have consistently performed beyond their voluntary production adjustments, others are yet to achieve 100 percent conformity. Furthermore, the JMMC underscored the critical importance that all participating producing countries reach or exceed the 100 percent conformity rate, and recommended that the JTC continue building on the progress made at the JTC Extraordinary Session held in Abu Dhabi on 8 August, to support each participating country in their efforts towards achieving full conformity with the Declaration of Cooperation.

Commercial oil stocks in the OECD fell further in August and the difference to the latest five-year average has been reduced by 168 million barrels since the beginning of this year, however, there remains another 170 million barrels of stock overhang to be depleted. Supported by the improving forward structure in the futures market, floating storage has also been on a declining trend since June.

However, analysts say that the oil cartel may be clinking glasses too soon because the cuts has done too little to raise oil prices. While OPEC has succeeded in cutting about 1.8 million barrels per day of its members, prices has struggled to leave $50 per barrel.

Against the backdrop of OPEC meeting last week to explore further cuts to members’ production, oil sector experts say the oil cartel should focus on raising refining margins around the world as it holds more promise for oil rally rather than forced cuts on members production.

For a country like Nigeria, this rings very true. With demand for PMS put at over 35 million litres, the downstream sector holds the promise of better margins in a sector where oil prices have essentially failed to respond to every prodding to get up to levels it was at in 2014.

Analysts are watching refineries around the world for signs that the oil price rally can continue and help drain crude inventories that have been high for the past three years. “There are times like these when refiners will push the envelope, especially when the envelope is getting stuffed with cash,” John Kilduff, Again Capital founding partner, an investment firm told CNBC.

ISAAC ANYAOGU