OPEC’s decision to rein in compliance rates with the 2016 oil production cut deal is “interim”, Saudi Arabia’s Oil Minister Khalid al-Falih said after the meeting as quoted by Kuwait’s news agency KUNA.
Elaborating on his remark, the official said this meant that producers from the cartel were not obliged to strictly adhere to the new production ceiling, which in itself is a vague one, since the official OPEC statement following the Friday meeting did not include a ceiling figure.
All it said was that “the Conference hereby decided that countries will strive to adhere to the overall conformity level of OPEC-12, down to 100%, as of 1 July 2018 for the remaining duration of the above mentioned resolution and for the JMMC to monitor and report back to the President of the Conference.”
Falih further made a point of reasserting Saudi Arabia’s commitment to the deal, despite already abundant evidence to that effect, by saying that OPEC’s number-one producer could lift production by 1 million bpd single-handedly, but it would not do so because “it is an inseparable part of a gathering that functions with solidarity and partnership for stability of the global oil market.”
Unfortunately, it seems that this dedication has not played out as expected: crude oil prices actually jumped last week after the conclusion of the meeting, which was the opposite of what the meeting sought to achieve.
The reason for the jump was that traders either overestimated Russia’s clout with OPEC or simply took the initial suggestions made by Al-Falih and Alexander Novak too literally. The two first started talking about a 1-million-bpd increase, then Novak said Russia will propose 1.5 million bpd more in total production from the signatories to the cut deal, and eventually Al-Falih said the 1-million-bpd figure was “nominal” since not all OPEC members had the spare capacity to increase production.
By Irina Slav for Oilprice.com
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