Recommendation echoes member country suggestions
OPEC appears ready to approve extending cuts beyond the current June expiration date, based on pronouncements by several groups.
The Joint Ministerial Monitoring Committee, a group composed of representatives from OPEC and non-OPEC nations, recommended a nine-month extension today, according to a releases by the group. The JMMC reports that overall OPEC is in 102% compliance with the cut levels, up from the 98% compliance in March. While this is correct, it is because Saudi Arabia has cut production beyond its obligations in an attempt to make up for less than wholehearted cuts from other members.
After examining the current market conditions, the JMMC decided that extending current cuts for another six months, as was originally considered, would not be sufficient to rebalance oil markets. Several possible scenarios were examined, and the committee concluded that cuts should be extended for nine months. This conclusion corresponds with statements made by OPEC members like Saudi Arabia and non-OPEC members that agreed to cuts like Russia.
The UAE’s oil minister today announced support for either a six or nine month cut extension, whichever was supported by the majority of members. In an interview with Sky News Arabia, the minister remarked that the UAE expected full compliance with whatever deal is reached. However, according to Bloomberg the UAE produced an average of 60 MBOPD more than it committed to, giving it the second-worst compliance of any OPEC member. It is unclear if this situation will be changed when cuts are extended.
The Algerian energy minister mentioned “There was no country that said ‘we oppose nine months’,” in an interview with Reuters. Kuwait’ oil minister hopes for even more, announcing that extending cuts for a year or deepening cuts are not off the table.
Larger than expected crude draw
Oil received additional good news today in the EIA’s Petroleum Status Report. The EIA estimates that the current crude inventory is 516,340 MBBL. Inventories dropped by 4,432 MBBL last week, more than double analyst expectations. Inventories are almost 25 MMBBL lower than they were at this point last year, suggesting the long-awaited draining of American stockpiles may have begun. On the other hand, stocks are still 78 MMBBL higher than the five-year average. There is still a long way to go before markets are truly rebalanced.
