London — Oil prices have risen some 25% since the beginning of the year thanks, in large part, to production cuts by OPEC and its allies, no doubt buoying the sentiments of ministers ahead of Monday's monitoring committee meeting in Azerbaijan.
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But tepid demand growth going forward and an uncertain supply outlook will give the OPEC/non-OPEC coalition pause when they discuss the future of their supply accord, which is set to expire in June.
OPEC watchers say the six-country Joint Ministerial Monitoring Committee is unlikely to announce any recommendations to change the 1.2 million b/d cut agreement, though Saudi officials have said they would like to see it extended through at least the end of the year.
But even that preference contains the caveat of maintaining flexibility should production in Iran and Venezuela continue to fall under US sanctions.
"It is [US President Donald] Trump and not OPEC that holds most of the 'wildcards' that could shape market outcomes in 2019," the Oxford Institute of Energy Studies' Bassam Fattouh and Andreas Economou wrote in a recent commentary.
The US has signaled it may impose additional sanctions targeting Venezuelan state oil company PDVSA if the country's president, Nicolas Maduro, does not step aside.
But US officials have also said their decision on whether to renew sanctions waivers on Iranian crude purchases, which expire May 5, may depend on the severity of Venezuela's decline.
Venezuela pumped 1.10 million b/d in February, according to the latest S&P Global Platts survey of OPEC production, down 30% year on year.
The International Energy Agency on Friday said OPEC may have to tap into its 2.8 million b/d of spare production capacity to prevent a market squeeze if Venezuela collapses further.
OPEC's own analysis arm, however, said Thursday that slowing global economic growth will hurt oil demand, while supplies from outside of OPEC were projected to rise faster than expected.
For now, JMMC will take a wait-and-see approach on how market fundamentals look closer to the cut agreement's expiry. Delegates say they have held discussions on light versus heavy crude balances and how they may evolve through the year, particularly as the International Maritime Organization's marine fuels lower sulfur cap goes into force in 2020.
Most of the OPEC cuts have been in heavier barrels, while the surge in US shale production has led to plentiful light oil in the market.
The full OPEC/non-OPEC coalition will meet April 17-18 and again June 25-26 in Vienna.
"We do not think any sort of decision will come out of this [JMMC] meeting, but there may be some chatter," said Paul Sankey, an analyst with Mizuho Securities. "But given the pace at which the market appears to be cleaning up excess stocks, we think the June meeting could have some suspense."
Even without any grand pronouncements, the JMMC meeting may still serve as a forum for Saudi Arabia to pressure less compliant members of the coalition to bring their crude production down in line with agreed quotas.
Saudi energy minister Khalid al-Falih has already expressed some displeasure over non-OPEC Russia's pace of production cuts. Russia announced February production of 43.3 million mt, or about 11.34 million b/d, which was above its quota of 11.19 million b/d.
Russian energy minister Alexander Novak, who co-chairs the JMMC with Falih, has said the country will be in full compliance by the end of March.
Falih has also called on Iraq and Nigeria to tighten their compliance.
Iraq pumped 4.63 million b/d in February, compared with its quota of 4.51 million b/d, while Nigeria produced 1.74 million b/d in the month, above its quota of 1.69 million b/d, according to an average of the secondary sources that OPEC uses to monitor output.
Saudi Arabia has said it intended to "lead by example" on the price-bolstering cuts, and it has followed through, with February production coming in at 10.09 million b/d. The kingdom has said it intends to go even lower in March. Its quota under the deal is 10.31 million b/d.
The committee may also discuss the drafting of a permanent charter to institutionalize the partnership between OPEC and its 10 non-OPEC allies in the supply accord.
The countries have been debating various drafts of the agreement since last year, as OPEC wants to broaden its market clout, but progress has been held up by the reluctance of Russia and others to be formally tied to the organization, preferring a looser arrangement.
Changes to the six-country JMMC -- currently Saudi Arabia, Russia, Kuwait, Venezuela, Algeria and Oman -- may be on the agenda, as well.
Oman has expressed its desire to no longer serve on the committee, while Venezuela's assumption of the rotating OPEC presidency may open up another slot on the panel.
The UAE has said it would be interested in joining the committee, and Kazakhstan may also be considered for membership, delegates said.
Algeria and Kuwait plan to retain their seats on the panel, delegates with those countries told Platts.
The committee is tasked with monitoring market conditions and assessing compliance with the supply cuts, as well as making recommendations to the wider OPEC/non-OPEC coalition.
--Herman Wang, firstname.lastname@example.org
--Edited by Dan Lalor, email@example.com