OPEC+ monthly talks plan meets resistance with OSP timing a concern: sources

London — Several delegates within the OPEC+ alliance have voiced concerns over plans for the group to meet monthly to assess production levels, casting doubt on a cornerstone of its strategy to micro-manage the market's recovery from the coronavirus pandemic-induced demand slump, sources told S&P Global Platts.

Opposition is brewing within the 23-member producer group to plans for more frequent consultation after it agreed on June 6 to extend record 9.6 million b/d of output cuts through the end of July. The plan requires its influential nine-country Joint Ministerial Monitoring Committee (JMMC) — co-chaired by heavyweights Saudi Arabia and Russia — to gather monthly.

The JMMC will weigh compliance with quotas, analyze the state of the market and recommend any changes to the cut volumes, if needed. The first such meeting will be June 18.

However, some ministers are already worried the plan may backfire and lead to market whiplash.

"Several have voiced their concerns," one source with knowledge of the discussions told Platts.

Coordinating more meetings with the timing of official selling prices (OSPs) set monthly by core Persian Gulf producers including Saudi Arabia and the UAE is understood to be a concern. Closely watched by the market, state-run oil giant Saudi Aramco typically reveals its crude OSPs by the fifth day of the previous month.

Persian Gulf OPEC members led by Saudi Arabia will have likely already announced their term allocations and official selling prices for the coming month ahead of any JMMC meeting, potentially influencing the market's direction.

Delegates said the JMMC is unlikely to discuss August cuts at its meeting later this month, as it comes too far in advance. However, the July JMMC — which sources said would probably be in the second half of the month — may be too late because some producers, not least Saudi Arabia, are expected to have announced their term allocations and OSPs for August by then.

Aramco in recent months has delayed its OSPs, pending the outcome of OPEC+ meetings, as it did on June 7 in announcing July prices. But a late July JMMC meeting, which would then require an emergency session of the entire OPEC+ coalition to ratify any decision, would leave just days for customers to prepare for the volumes they are set to receive — or not receive, as the case may be.

Oman's oil minister Mohammed al-Rumhy told Platts in an interview on June 11 that making a monthly call on production quotas would be hard to sustain.

"It's very difficult to plan and the market dynamics of a month-to-month adjustment of production doesn't really work," Rumhy said. "I hope that we can come up with a better agreement on how we manage both the supply-demand picture as well as the stock threat to the fundamentals."

Another OPEC+ official, who spoke on condition of anonymity, said Rumhy's reservations are shared by other delegations. They worry about overdoing communication to the market, creating confusion on the OPEC+ alliance's intentions.

BAD TIMING

Even for crude traded on a spot basis, it can take time for the physical volumes to reach terminals, be processed into consistent, marketable grades and be loaded onto a tanker or delivered via pipeline. Storage facilities can help manage flows of exports, but not all OPEC+ members have significant tank capacity.

If the OPEC+ alliance decides to move up its July JMMC to help Saudi Arabia and other core members plan their allocations and OSPs, then the group could be forced to make a decision without having June production data to analyze.

Saudi energy minister Prince Abdulaziz bin Salman and his Russian counterpart Alexander Novak have made quota compliance a major priority in implementing the deal, with countries that have overproduced in May and June required to make deeper cuts in the next quarter to make up for their extra barrels.

June production figures provided by the six secondary sources used by OPEC+ to track member output will not be not fully available until mid-July.

Travel restrictions and the health risks posed by the pandemic have forced the group's officials to hold their meetings online, rather than fly to the OPEC secretariat in Vienna. The flexibility that web-based summits offer can make for more nimble policymaking, some delegates said.

"There will be monthly monitoring by JMMC, and just in case the market development leads to ... a decision different to the adjustment plan already agreed, there should be an extraordinary OPEC+ ministerial meeting to adjust the plan," one source told Platts. "I think it is logical considering the uncertainties we are facing."

Russian energy minister Alexander Novak, in a June 8 news conference with OPEC counterparts, said it was still too early to be discussing a potential August extension of the production cuts and that the market situation could drastically change in the coming weeks.

But he also flagged no concerns with an extraordinary OPEC+ meeting being arranged, if needed.

"We can gather pretty quickly and pretty much make any decision without going through a difficult process of organizing a formal meeting," he said. "We have new and modern means of communication available to us in order to be able to quickly exchange information on these topics and make a very rapid decision when it need to be done."

At any rate, ministers may only be able to take advantage of virtual meetings for a few more months. OPEC+ has scheduled its next formal meetings for November 30 and December 1 — to be held in Vienna, as long as travel is safe.