Complete adherence to the recent accord on oil production limits is paramount to rebalancing oil market fundamentals and ensuring stability in the industry, the OPEC-plus watchdog group warned Thursday.
The Joint Ministerial Monitoring Committee (JMMC) is co-chaired by Russia and Saudi Arabia’s energy ministers, and is tasked with assessing energy market conditions, especially as it relates to conformity levels with oil output cuts agreed to at OPEC-plus meetings. The JMMC then recommends adjustments if needed, or staying the course.
Following a meeting via video conference, the group did not propose further adjustments to the OPEC-plus agreement reached at the June 6 meeting, but did emphasise “the critical importance of adhering to full conformity, and compensating the overproduced volumes in the months of May and June, during the months of July, August and September”.
Following through on commitments made to reduce crude production is “critical” to “supporting oil market stability and economic recovery, in the face of the COVID-19 pandemic shock and the subsequent severe global economic downturn,” the JMMC said in a statement.
“The attainment of 100% conformity from all participating countries is not only fair and equitable, but vital for the ongoing and timely rebalancing efforts and helping deliver a sustainable oil market stability,” it added.
OPEC-plus (made up of the cartel’s members and other energy producers like Russia and Norway), held an extraordinary meeting in early April to address an oil market teetering on the edge due to demand destruction by the COVID-19 pandemic, and oversupply from the price war between Russia and Saudi Arabia.
The final agreement was the group would collectively reduce oil production by 9.7 million barrels per day in May and June, then tapering to -7.7 million bpd from July to the end of 2020. The group met again on June 6 and decided to extend the first phase of cuts until July 31.
But OPEC’s monthly oil market report for June shows the group’s crude oil production in May only decreased by 6.3 million bpd to average 24.19 million bpd. Meanwhile, the demand estimate for OPEC crude this year was revised down by 700,000 bpd to 23.6 million bpd.
The JMMC noted the lack of follow-through by some OPEC-plus participants, saying there was only 87% adherence to the new production limits in May. To ensure 100% compliance, these countries will have to make additional cuts – on top of their pre-determined allotment – in July, August and September to compensate for the shortfalls recorded in May and June.
The JMMC said Iraq and Kazakhstan have already submitted their compensation schedules, and that other “underperforming participants” have until June 22 to submit their schedules for compensation to the OPEC Secretariat.