OPEC and its Russia-led non-OPEC partners in the production cut deal may have to change course in the current relaxing of the cuts, due to increased inventories in recent weeks and uncertainties about the global economy, a panel of the oil producers part of the pact said on Thursday.
The Joint Ministerial Monitoring Committee (JMMC), which met to review the state of the production cuts pact and the short-term prospects of the oil market, said that its review of the recent market fundamentals showed “a very comfortable supply level relative to demand.”
“The committee however expressed concerns about rising inventories in recent weeks and also noted looming macro economic uncertainties which may require changing course,” the panel said in a statement.
OPEC and allies agreed in June to relax compliance rates with the cuts to 100 percent from the previous over-compliance. The respective leaders of the OPEC and non-OPEC nations part of the deal—Saudi Arabia and Russia—have been interpreting the eased compliance as adding a total of 1 million bpd to the market.
The panel meeting today found that OPEC and allies achieved a combined compliance rate of 111 percent in September, “which shows significant progress towards the goal set at the 4th OPEC and non-OPEC Ministerial Meeting of 23 June 2018,” that is bringing compliance down to 100 percent.
However, since June, weakening emerging markets and currencies, a stronger U.S. dollar, and trade wars and tariffs have been putting downward pressure on forecasts for the global economic and oil demand growth in the near term. Related: Oil Steady Despite Major Crude Build
OPEC itself cut its oil demand growth estimates for 2018 and 2019 three times in as many consecutive months.
Last week, OPEC Secretary General Mohammad Barkindo said in a speech in India that while the oil market currently looks “adequately supplied and well-balanced, though in a fragile state,” there is “a growing potential for an imbalance, due to larger growth in supply” in 2019.
OPEC’s panel vowed today to continue to monitor oil market fundamentals and compliance “in its efforts to maintain market balance.”
The next meeting of the JMMC is slated to take place on November 11 in Abu Dhabi.
By Tsvetana Paraskova for Oilprice.com
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