OPEC tried to thread the needle with offering a long list of messages that more production is on the way to satisfy President Trump while not offending fellow member Iran with a specific production hike number. Iran declared itself satisfied after the meeting; we’ll see what Trump says after the market opens on Monday.
We doubt we have heard the last on the production message from OPEC’s defacto leader Saudi Arabia - especially if prices rise in the next few days. Therefore, we are on high alert for a specific number from Saudi & Co. should prices rise above $80 this week.
OPEC’s important Joint Ministerial Monitoring Committee (JMMC) met in Algiers on Sunday giving several messages that it hopes will cool rising oil prices and relieve some political pressure and criticism from Trump ahead of the US election. Among the general messages from OPEC on Sunday:
- Market is well supplied;
- Saudi Arabia will do “whatever it takes” to maintain market stability;
- UAE production will rise to 3.5 million barrels per day (b/d) by year-end;
- Russia stands ready to hike production to offset Iran losses; and
- OPEC Forecast that supply will exceed demand in 2019.
In addition, OPEC got a bit of a temporary gift from Libya who announced Sunday that its production has spiked to 1.278 million b/d and perhaps buys it some breathing room for not offering a specific number.
But the big news came after the JMMC press conference when Saudi Minister al-Falih told reporters that Saudi production will rise in both September and October:
“I don’t have my hands on the number (Saudi output). It is above the previous month and in October it will be even higher. We have seen higher demand in October. Our plan is to respond to demand. If demand is 10.9, you can certainly take it to the bank that we will meet. But the demand is 10.5 or 10.6, I think October will be more than this. But I don’t recall the numbers. But October was a healthy number above the last three months.” (Transcript provided by Platts Oil)
In June OPEC first tried to offer a similar general message of more production coming but less than 24 hours later after oil prices rose, ministers from Saudi Arabia and Russia announced a boost of 1 million b/d that calmed markets.
We tweeted today that we didn’t think the press conference would be the last word on the production message. And sure enough, Saudi minister al-Falih made his comments above about Saudi production rising in September and October. Minister al-Falih said October was “above the last three months” and suggested it was more than 10.6 million b/d.
The JMMC also confirmed that compliance for August was 129 percent of the goal set in the production cut agreement with non-OPEC producers. OPEC said it would focus on reducing the over-compliance to 100 percent as per OPEC’s decision at the June meeting. This would translate into an increase of about 500,000 b/d.
Minister al-Falih said 100% compliance is "a moving target" adding that "whatever takes place between now and the end of the year in terms of supply changes will be addressed." Russian Novak said he thinks the group will reach 100% compliance “already in September or October.”
Iran’s oil minister had boycotted the Algeria meeting on Sunday because he felt a decision was in the works to boost production that would threaten its market share. Indeed we were hearing that OPEC was discussing a proposal to quantify a production boost by recalculating the over-compliance number to 100 percent.
However, OPEC decided to take the position that Iran’s exports were not yet affected despite ample evidence that it had lost customers amounting to about 700,000 b/d. This is obviously a political decision to try to keep Iran mollified in the spirit of OPEC unity. But the other reason is that OPEC does not want to have to deal with the issue of Iran’s lost supply to global markets until it is ready. The JMMC has started work on a response plan and scheduled its next meeting for November 11 – just seven days after US sanctions on Iran go into effect.
