London — Saudi Arabia redoubled its crusade for OPEC+ compliance Aug. 19, laying pressure on the alliance's quota violators to make up for their excess crude production with deeper cuts in the coming weeks, in the name of fairness and market stability.
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Nigeria and Iraq, two of the biggest compliance laggards, received calls from Saudi Arabia's King Salman and Crown Prince Mohammed bin Salman, respectively, to "stress the importance" of adhering with their OPEC+ commitments, including so-called compensation cuts they are scheduled to implement in August and September, the official Saudi Press Agency reported.
And a key OPEC+ monitoring committee Saudi energy minister Prince Abdulaziz bin Salman co-chairs with Russian counterpart Alexander Novak gave the rest of the non-compliant members until Aug. 28 to submit plans to make their surplus production whole.
Data compiled for the committee and seen by S&P Global Platts shows the 23-country OPEC+ coalition exceeded its quotas by 357,000 b/d from May to July, though that is juiced by significant overcompliance by Saudi Arabia, which had said it intended to lead by example with a voluntary extra 1 million b/d cut in June.
"As we go forward, we should strive to achieve full adherence to our agreement," Prince Abdulaziz said in his opening remarks to the Joint Ministerial Monitoring Committee's online meeting. "Not only does this accelerate the rebalancing of global oil markets, it also sends out a serious message that there is a new spirit of determination and discipline in our group."
Novak, who participated in the meeting despite contracting COVID-19 earlier in the week, said the market was still "extremely fragile," and despite the 23-country OPEC+ coalition's 95% compliance level with its production cuts in July, members should remain cautious.
"The market remains extremely volatile and we should keep 100% conformity of the deal," he said. "Now more than ever, it is extremely important to deliver full commitment to the deal and closely monitor the market."
Get it done by September
The alliance implemented the largest coordinated production cut in the oil market's history in May at 9.7 million b/d, about 10% of pre-pandemic demand, as prices plunged from the impact of COVID-19 on the global economy, as well as a short-lived price war in April after OPEC+ initially failed to agree on a supply accord.
Oil prices have stabilized around $45/b in recent weeks, and the coalition has eased its cuts to 7.7 million b/d from August through the end of the year, in anticipation of higher demand, though the compensation cuts should offset a chunk of that.
Iraq previously pledged it would make 400,000 b/d in extra cuts for August and September, in a plan endorsed by Saudi Arabia and its Gulf allies.
Prince Abdulaziz said if all the compensation cuts are implemented, there should be no need for additional punitive measures.
"We should endeavor to put this temporary compensation regime behind us, by clearing all the past overproduction by end of September," he said.
Algerian energy minister Abdelmadjid Attar, who holds the rotating OPEC presidency for 2020, said in his opening remarks that the pace of the oil market's recovery could have been hastened if all members had stuck to their quotas.
"As always, it's implementation that matters the most," he said.
Improving, but fragile, outlook
Even with the admonishing of the non-compliant members, the monitoring committee sounded some optimism about the trends in the oil market.
The world is expected to reach about 97% of pre-pandemic oil demand in the fourth quarter, Prince Abdulaziz said, based on the projections from analysts in the International Energy Agency, the US Energy Information Administration, OPEC and other forecasting agencies.
"Over the past three months, there has been a significant improvement in the fundamentals of the global oil markets," he said. "We see encouraging signs that energy demand is recovering as economies continue to reopen in many parts of the globe."
Novak noted the "first signs of a slowdown in global inventory build-up," saying that as of July, commercial oil stocks held by OECD countries had shrunk by about 13 million barrels from their peak.
However, the committee noted in its post-meeting communique the "fragility of the market and significant uncertainties, particularly associated with oil demand," and called for "vigilance by all participating countries."
The JMMC meets monthly to adjudicate compliance and monitor market conditions. It can recommend changes to the OPEC+ deal, if needed, which would then need to be ratified by the full coalition.
The JMMC set its next meeting for Sept. 17, with a delegate level technical advisory committee to meet the day before.
"If the market becomes overheated, we still have all the opportunities for its rapid stabilization," Novak told Russian television network Rossiya 24 in an interview.