OPEC held its joint monitoring committee meeting today with non-OPEC producers in St. Petersburg, Russia as part it its production cut deal implementation. One month into the extension of the deal and compliance is not great but more about that later.
There were a few announcements but no real news at the press conference this morning attended by OPEC Secretary General Mohammed Barkindo, Saudi minister Khalid al-Falih and Russian Minister Alexander Novak.
On Saturday there was a boomlet of rising expectations and potential news coming out of the meeting when the Wall Street Journal reported that Saudi oil minister Falih had cancelled vacation plans to personally attend the meeting. The newspaper quoted a source as saying the Saudi minister was “very nervous.” Other media reports said the minister was “worried.”
We monitored the press conference but there were no signs of any minister being nervous or worried about the production cut deal or oil markets.
Regardless, we were not expecting any news or major decisions at the Russia meeting. However, it is important to underscore that there were no announcements on deeper cuts or path forward to limit Libya and Nigeria production that is busting the OPEC deal.
In short, no change in fundamentals coming out of this meeting.
Instead, OPEC’s objective in St. Petersburg and in the next few months is to try to regain the narrative in oil markets in an attempt to stabilize or boost prices. So the producer group will redouble efforts at managing headlines but not supply at the global well-head.
To that end, OPEC discussed using exports as another metric in defining success under the agreement. The Saudis officially announced they would reduce August exports to a record 6.6 million barrels a day (M b/d) – down from 6.9 M b/d in June. Again, this is not really news as the Saudis leaked the August export plan earlier this month to offset news that they had overproduced and were not in compliance for the OPEC deal in June.
The Saudi effort is part their strategy that began in May to reduce exports to the US in order to impact draws in weekly US EIA petroleum data. Indeed, they are following through and causing draws (with SPR sales) in US crude stocks but are also shifting those exports elsewhere and into product exports. We like to call the Saudi focus on exports to the US as “working the refs” at EIA to manage sentiment in the market.
Meanwhile, the Saudi’s weren’t the only producers out of compliance with the deal in June. The IEA says compliance fell to 78 percent as OPEC added 340,000 b/d in June. In addition to Saudi Arabia, UAE and Iraq are laggards. Russia claims it cut 300,000 b/d in June and says it will maintain that level but we have our doubts. At the press conference, the Russian minister said the group will urge all producers to improve their compliance over the next several months.
The Russia meeting follows bearish news last week that OPEC member Ecuador has exited the deal while non-OPEC member Kazakhstan said last month that it wants a “soft exit’ this fall.
Libya and Nigeria continue to be a major problem for the OPEC deal as both have combined to add 800,000 b/d since the deal was signed. While no announcement was made today, we think there will be a concerted effort to bring Libya and Nigeria into the deal. We see increasing odds that their exemption will be up as we approach the November 30 meeting in Vienna. We don’t expect cuts but instead see likely caps which in Libya’s case may be consequential.
