The oil market is moving in the right direction towards rebalancing, but all options, including extending the cuts beyond March 2018, are left open, the joint OPEC/non-OPEC committee set up to monitor compliance with the cuts and the state of the oil market said on Thursday.
The Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC)—which has been holding meetings in Vienna this week to discuss slipping conformity with the pledges—pointed to a better-than-expected global oil demand growth for this year, and expectations for further growth next year as one of the reasons for optimism. In addition, the OPEC/non-OPEC panel pointed to oil commercial stocks declining in July—and along with it the latest five-year average—compared to the start of this year. The narrowing contango has also contributed to a drop in floating storage since June, the committee noted.
OPEC’s de facto leader Saudi Arabia and the leader of the non-OPEC producers, Russia, have discussed extending the cuts by three months into June 2018, and such a move would likely be on the agenda of the November 30 OPEC summit, S&P Global Platts reported today, citing sources.
According to energy and commodities analysts, a three-month extension would be a logical step to take in the autumn when the oil market sentiment would likely sour again. An extension to June 2018 would also prevent a “severe uptick” in surplus after March next year, as Michael Cohen, head of energy commodities analysis for Barclays, told Platts.
According to Joe McMonigle, senior energy policy analyst at Hedgeye Potomac Research, an extension at the November meeting would be the minimum action OPEC would take.
“The market will be looking for stronger action, like deeper cuts,” McMonigle noted. Related: Nigeria’s Oil Industry Overhaul
Immediately after OPEC announced at the end of May the extension of the cuts into March 2018, oil prices plunged, because the market was expecting a more drastic action, like deeper cuts, that would prove that OPEC really was willing to do “whatever it takes” to bring the market back to balance.
The joint panel also said today that it planned to invite Libya and Nigeria to attend the next meetings of the committees, in a sign that rising output from those two exempt producers is now a concern for OPEC. The next JMMC Meeting will be held in Vienna on September 22, 2017.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- EIA Spreads Optimism With Double Draw
- Strong Inventory Draws Suggest OPEC Deal Is Working
- Shale Drillers Head North As The Permian Fills Up