Vienna — Vienna — OPEC and its allies will adjust individual oil production caps accordingto each member's ability to pump more crude under their plan to add up to 1million b/d of supply, Saudi energy minister Khalid al-Falih said Saturday.
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The allocations will be determined by a six-country monitoring committeechaired by Saudi Arabia and Russia, Falih said. Five of the six members of theJoint Ministerial Monitoring Committee -- Saudi Arabia, Russia, Kuwait,Algeria and Oman, but not Venezuela -- hold most of the coalition's sparecapacity, Falih noted.
The committee "will be coordinating amongst ourselves the allocations ofthese volumes to address the incremental demand that is materializing in thesecond half and to prevent an overtightening of the market that will beharmful to demand," Falih said in a press briefing, after OPEC's 10 non-OPECallies ratified their new agreement in Vienna.
"That implies that there will indirectly be a reallocation of cuts," headded.
This appeared contrary to the understanding of Iranian oil minister BijanZanganeh, who was opposed to increasing quotas under the deal. Iran is facingthe snapback of US sanctions on November 5 that analysts say could take up to1 million b/d of its production off the market.
Zanganeh's description of the deal was that each country would produceonly up to its individual allocation and not infringe on the market share ofother members unable to pump more.
In an interview with S&P Global Platts, Zanganeh said late Friday thatOPEC should not be in the business of caving in to US demands, and blamed thesanctions for the recent price rise.
"Generally, my point was that OPEC shouldn't give a positive signal tothe US and it didn't," said the minister, who left Vienna early Saturday anddid not attend the meeting with non-OPEC partners.
Falih said that while he respects the positions of other OPEC members,"my bigger guiding principle is to be respectful of what the market needs,"adding that Saudi Arabia had already begun to ramp up production inanticipation of higher demand in July.
Russian energy minister Alexander Novak said Russia would comply with itsquota of 10.9 million b/d in June, but would look to boost output up to200,000 b/d starting in July. Russia and Saudi Arabia had met several times inthe weeks leading up to the meeting to align their positions.
"We have come to a very important conclusion based on the situation todayand forecasts we have to return our observance of the deal to 100%," Novaksaid.
MEET TO DISCUSS
The JMMC will next meet September 22-23 in Algiers.
OPEC's next full meeting is scheduled for December 3 in Vienna, withnon-OPEC partners joining talks a day later.
Falih declined to give an exact timetable of how the 1 million b/d wouldbe ramped up, saying the JMMC would be monitoring market conditions.
Should it decide that supply and demand fundamentals warrant asignificant change in output strategy, OPEC can call an extraordinary meeting,he said.
"In terms of where supply will be in September, it will depend on whatdemand is, as well as any continued reduction of supply from some of the 24countries," Falih said. "We will not wait until September to dialogue. Wetalked already about having meetings between now and then, perhaps bytelephone."
Ironically, the committee had been tasked with enforcing productiondiscipline among the group, Falih said. But, with over-compliance on thecommitted cuts averaging around 983,000 b/d over the last three months "now wesort of encourage people to exceed [their quotas] so that we bring overallconformity to 100%", he added.
The deal commits OPEC and 10 non-OPEC partners, led by Russia, to cut 1.8million b/d through the end of 2018.
Output of the 12 members with hard quotas was 710,000 b/d below theircombined caps. Crisis-wracked Venezuela, whose production has been infreefall, accounts for some 610,000 b/d of that.
The International Energy Agency estimated that the non-OPEC participantsproduced 220,000 b/d above their caps in May.
That leaves the combined 24-country OPEC/non-OPEC coalition with around500,000 b/d of cushion under its total ceiling.
UAE energy minister Suhail al-Mazrouei, who is serving as OPEC'spresident this year, said the producer coalition would not flood the marketbeyond what supplies it needs.
"Are we going to overdo it? No. We have demonstrated the capabilities todo what is required," Mazrouei said.
--Edited by Andy Critchlow, firstname.lastname@example.org