The monitoring committee overseeing the OPEC/non-OPEC output agreement saw no need to recommend deeper cuts or any extension of the deal on Friday, saying it was still too early, but it has added a wrinkle in its compliance calculations -- monitoring crude exports.
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While production, as measured by six independent secondary sources, including S&P Global Platts, would continue to be the primary metric by which compliance with the deal is evaluated, ministers on the monitoring committee said they would now incorporate export data to bolster trader confidence that the cuts are, in fact, lowering supplies to the market.
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"Production data is what we are monitoring every month; however, in order to give more authenticity to this data, we have suggested that we use export data as a mechanism to support that data, but not to replace it," said Kuwaiti oil minister Essam al-Marzouq, who chairs the committee.
Venezuela oil minister Eulogio Del Pino said there was a "good correlation" between exports and production, and indeed, Marzouq said the technical staff of the committee reviewed export data for August, which "confirmed the [production] figures that have been reported by secondary sources."
"We will further pursue this monitoring mechanism," Marzouq said.
The discussion about exports comes as ministers are reportedly frustrated by the production cut agreement's inability to stabilize prices in the $55-$60/b range that the coalition is targeting, despite strong overall compliance with quotas, which the committee pegged at 116% for August.
ICE Brent futures were trading at $56.35/b after the committee meeting, after having slumped below $45/b in June.
Some deal participants, even as they cut production at the wellhead, have continued to supply the market with substantial volumes, drawing from their barrels in storage.
And some countries continue to underperform on their quota compliance, with other countries overcomplying to make up the difference.
OPEC Secretary General Mohammed Barkindo specifically praised OPEC members Saudi Arabia, Angola and Equatorial Guinea, along with non-OPEC Azerbaijan, Brunei and Sudan for their strong compliance and "sacrificing in the interests of all."
As for the other members, Barkindo had a pointed message: "The numbers show that had every participating country conformed fully since the beginning of the declaration of cooperation the market would have already returned to balance."
The move to monitor exports comes despite misgivings from some members. Russian energy minister Alexander Novak, who had previously noted that crude exports from his country had high variability, depending on refinery runs, seasonality and maintenance, said he was not opposed to monitoring export levels, but said that "there are difficulties from the point of view of data accuracy."
"On the whole, we are not against it as an additional factor, but the main factor is production," Novak said.
Still, Nigerian oil minister Emmanuel Kachikwu said he would not be surprised if OPEC begins to change its compliance focus from production to exports, given many members' planned build-out of refining capacity, though that was not likely in the near-term.
"When countries begin to internalize production a lot more, in terms of refining and all that, the shift has got to move from what you produce to what you actually export, and I'm all for that, but that's obviously a way to go," he said.
Saudi energy minister Khalid al-Falih, who dialed into the monitoring committee meeting Friday, had said in July that exports "are now the key metric for financial markets" and that the 24-country coalition needed "to find a way to reconcile credible export data with production data in our monitoring meetings."
The agreement calls on OPEC and 10 non-OPEC producers, led by Russia, to cut a combined 1.8 million b/d in supplies through March to hasten the market's rebalancing.
With global inventories shrinking and the oil market "evidently well on its way to rebalancing," according to Marzouq, the committee said the OPEC/non-OPEC coalition would wait until closer to the March expiry of the current deal before deciding on any extension or deeper cuts, as conditions could change.
"Until we reach a period where we are maybe a couple of months away from the end of this first extension, then we cannot really say whether we want to extend another three or four months," Marzouq said in a briefing after the committee met.
Novak said the committee regularly discusses whether an extension might be needed, as it is mindful of the need for a graceful exit strategy once the deal nears its end in April 2018.
Decisions on including Nigeria and Libya in the cuts would also be made later once their security situations were more stable, the committee said, though Kachikwu insisted to reporters that Nigeria was already a participant with a "cap" of 1.8 million b/d.
Organisation for Economic Co-operation and Development commercial inventories as of August were down to 170 million barrels above the five-year average, compared with 340 million barrels in January, the committee reported. Of the current barrels in storage, 137 million are crude and 33 million are refined products. About 112 million barrels of the total are in the US.