This week, on the 18th of June, an OPEC+ monitoring panel will meet to table matters on compliance in cuts by member nations that defaulted earlier on their quotas. The meeting will also discuss how these nations are responding to fulfilling their quotas. Nigeria appears to be one of the nations lagging with compliance. The conference would represent one of the monthly meetings established to analyze the oil market and the necessary compliance with the production cuts.
Nigeria appears to be one of the nations lagging with compliance. According to Kyari, the NNPC GMD, Nigeria, is striving towards complying fully with its OPEC+ cut obligations by mid-July. It defaulted by producing under 100,000 barrels per day above its quota for May. The reason behind this non-conformity was more technical problems than defiance.
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Countdown to the previous meeting, Iraq, Nigeria, Angola, and Kazakhstan (Non-OPEC) were singled out for producing way above their quotas. Historically, Nigeria always under-achieved when it came to complying or honouring cuts. The latest S&P Global Platts OPEC+ survey revealed the West African nation produced nearly 300,000 b/d in surplus of its agreed 1.412 million barrel per day quota in May.
How about Iraq? OPEC’s second-largest producer, most times, is the black sheep of compliance. However, the nation has expressed its commitment to the production cuts. This transpired via a phone call between, Ihsan Abdul Ismaeel, Iraq’s oil minister, and Prince Abdulaziz bin Salman, Saudi’s Minister. This commitment was also reiterated in the last press release. Iraq has told some refiners to forgo some crude as well as telling British Petroleum to cut flow from Rumaila oilfield by 10%. Rumaila is Iraq’s largest field.
Saudi Arabia kept up his role as big brother of the OPEC+ family by reducing the amount of crude it will supply next month to few refiners in Asia. According to some officials’ privy to the matter, the volume of contracted oil the few buyers will receive for July was cut by 10% to 40%. Furthermore, South Korean oil processors were informed of curbs to their requested supply, while three refiners in Japan will make way with full volumes after their flows were reduced in June. All these reductions signal OPEC’s intention to balance the market.
The one-month extension agreed in the last meeting on the production cuts of 9.7 million barrels per day depends on all countries honouring 100 percent with their quotas and the non-compliant nations compensating for their quotas by increasing their cuts in July, August, and September. The OPEC+ group conducting JMMC holds meetings every month instead of ahead of every full OPEC+ meeting because of the turbulent oil market and uncertain global demand recover. According to Reuters, OPEC+ group’s production policies cannot be decided in these meetings, only recommendations for consideration can be discussed.
The oil price recovery is essential to OPEC nations; hence monitoring and ensuring compliance is paramount. Supply cannot continue to override demand, especially with demand lingering. With the United States of America also facing declines in production and drilling because of the impact of the coronavirus on their operations, a window of opportunity for increasing market share by OPEC+ is presented. But the battle with shale oil can come later; the short-term relies on reduced supply, and OPEC must comply.
Written by Dapo Thomas