Saudi Arabia's oil minister Khalid al-Falih did his best to restore the confidence of the oil market at the recent Joint OPEC-Non-OPEC Ministerial Monitoring Committee meeting in St. Petersburg, by promising that it will cut its exports to a six-year low next month.
S&P Global Platts senior editor Eklavya Gupte reads into some of the key statements made at this meeting, including Falih's remarks that it will look to use export data as a key metric for compliance.
Welcome to The Snapshot – our series which examines the forces shaping and driving global commodities markets today.
Saudi Arabia certainly did its best at the OPEC/ non-OPEC Joint Ministerial Committee meeting in St Petersburg on Monday to shore up confidence in the production cut deal.
But it is walking a tightrope.
Saudi Arabia reaffirmed that it will continue to shoulder the burden of the OPEC cuts and its oil minister Khalid al-Falih said it will hold exports at 6.6 million b/d in August, amounting to a 1 million b/d cut from peak 2016 levels.
This export figure would amount to a six-year low, and was part of the coalition’s attempt to signal to the market that it will use export data as a metric for compliance with the agreement.
At the same it acknowledged the pitfalls of accurately assessing such flows, especially given Russia’s concerns around the variability of its crude sales.
The cagey topic of what will happen when the deal runs out in March 2018 was also heeded, with Falih noting that there would be a smooth exit from the cuts whilst suggesting an openness to prolonging the deal past that expiration date.
Calls for Nigeria and Libya to cap their production had to be balanced with an appreciation of the hardships both militancy-afflicted countries have faced, he said.
Calls to ensure full compliance with the production cut deal, which has seen Ecuador wobble and Iraq continually fail to meet its quota, were also addressed, with Russian energy minister Alexander Novak saying non-compliers would be pressured to fall in line and Falih saying once again that Saudi Arabia would not tolerate free riders.
The strong words, however, will need to be backed up by clear action and verifiable evidence of that action for traders to set aside their skepticism.
It also will be difficult to bring about a system that measures exports that everyone buys into.
It will also be problematic to keep peddling the line that the production deal is working if the crude oil inventories don’t drop steadily especially in the current quarter where refinery runs are seasonally high.
But there are some silver linings.
Falih said there was room in the market to absorb 800,000 b/d to 1 million b/d of growth from the OPEC/non-OPEC bloc, banking on strong demand for the rest of the year.
Libya and Nigeria still have a bit further to go until their production increases are capped. Nigeria has suffered another setback this week, with a majority of Bonny Light shut-in while Libya has edged above 1 million b/d towards its 1.25 million b/d target though technical issues persist.
There certainly seems to be a determination by Russia and Saudi Arabia to galvanise OPEC and non-OPEC members to stick with the plan and see it through.
But depending on what lens you view it through, current prices may not be the reward many were looking for and that may indeed lead to further action sooner rather than later.