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OPEC cancels April meeting on steady market outlook


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OPEC cancels April meeting on steady market outlook

OPEC and its allies will leave the market waiting until close to the expiry of their supply accord in June to learn whether their 1.2 million barrels per day in oil production cuts will be extended into the second half of the year.

Saudi energy minister Khalid al-Falih, who had repeatedly said he would prefer the cuts be rolled over, conceded March 18 that the 24-country OPEC/non-OPEC coalition would not take a decision until its June 25-26 meeting in Vienna.

Russia and other members of the coalition appeared less enthusiastic about extending the deal. Supply risks from U.S. sanctions on Iran and Venezuela were still unclear and U.S. shale production forecasts too hazy to take a definitive decision before then, officials said in the Azerbaijani capital Baku, where the coalition's Joint Ministerial Monitoring Committee, or JMMC, met.

"Given the many uncertainties in the next few months, some on fundamentals, some on geopolitics, some on macroeconomics, it was found that April will be premature on taking a decision on what production would be in the second half," Falih said after chairing the meeting.

The JMMC — now expanded to nine members with the additions of Iraq, Kazakhstan, Nigeria and the UAE and the subtraction of Oman recommended canceling an extraordinary meeting scheduled for April 17-18, when OPEC had hoped to announce any cut extension. But another JMMC meeting has been added for May in Jeddah, Saudi Arabia.

OPEC and 10 non-OPEC allies led by Russia are in the third year of collective production cuts aimed at supporting oil prices, with the most recent round of curbs agreed in December 2018 to run through June.

Wait and see

OPEC's own analysis arm said March 14 in its monthly oil market report that oil inventories as of January were 2.88 billion barrels, about 19.1 million barrels above the five-year average that the coalition is targeting.

Falih, OPEC's de facto leader as energy minister of the organization's largest producer, said any production cut decision would be guided by market needs.

"We will wait for those inventories to go back to the level of where they were last year," he said. "We think that will not happen in the first half of this year, but we may be proven wrong. There are many unpredictable elements that could emerge in the next three to four months."

Russian energy minister Alexander Novak, who was unable to attend the JMMC meeting, told reporters March 17 in Baku that he did not think the coalition would need to make a decision on the future of the accord until at least May. He cited the "extremely negative impact and consequences" of U.S. sanctions that have severely hampered the ability of Iran and Venezuela to sell their crude.

"They completely distort the market and real supply/demand balance," said Novak, whose country is also under U.S. sanctions targeting its upstream sector. "Today, it is hard to plan even for a few months ahead because there has been a lot of volatility as a result of sanctions policy."

Still, Falih said March 17 that crude production from Iran and Venezuela had remained resilient in the face of sanctions, urging fellow ministers to "stay the course, certainly until June" on the cut agreement.

"The fact of the matter is that [Iran and Venezuela] have not declined precipitously to the point where we see there are still inventory builds," Falih said.

Sanctions uncertainty

Venezuelan production fell to 1.10 million bbl/d in February from 1.16 million bbl/d in January, according to the latest S&P Global Platts survey of OPEC output, though a recent massive power outage in the country is expected to have a significant impact on output.

Iran, meanwhile, held production steady at 2.72 million bbl/d in February, unchanged month on month, the survey found, as sanctions waivers the U.S. granted to eight countries to continue Iranian oil purchases help buoy output. The waivers expire in May, and U.S. officials have not said whether they plan to extend them.

Despite receiving no commitment from his counterparts to extending the cuts, Falih doubled down on Saudi Arabia's intent to overcomply with its quota under the deal and "lead by example."

The kingdom, which has sought higher oil prices to finance ambitious domestic reforms, would keep its crude production around 9.8 million bbl/d for both March and April, he said, compared with a quota of 10.31 million bbl/d. Exports in both months would be below 7 million bbl/d, the minister said.

The coalition achieved a collective compliance of "near 90%" in February with their agreed 1.2 million bbl/d in output cuts, the JMMC announced. That is higher than January's 83% compliance.

Russia is one of the noncompliant members, reporting last week February production of 43.3 million tonnes, or about 11.34 million bbl/d, which was above its quota of 11.19 million bbl/d.

Novak said the country would be in full compliance by the end of March or beginning of April, and that full cuts were delayed by weather and technical factors.

Iraq, another country that has been slow to bring production down in line with its quota, would slash its crude exports in March by 200,000 to 250,000 bbl/d from February's, oil minister Thamer Ghadhban told reporters March 17.

Herman Wang and Rosemary Griffin are reporters for S&P Global Platts. S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc. To see more commodities-focused news and analysis, visit