OPEC’s Joint Ministerial Monitoring Committee (JMMC) meets this weekend in Abu Dhabi, UAE to review producers’ compliance under the production cut agreement to date and receive an technical update on oil markets.
Already several ministers, including Saudi Energy Minister Khalid al-Falih, have expressed concern about rising inventories in 2019 and making adjustments to production levels.
We expect more general public comments about the need to pull back on production that was boosted this summer. But we think the market will be disappointed as the JMMC meeting is unlikely to offer any specific numbers on the cuts to be expected.
The bigger picture for investors is that OPEC is setting the stage for the rollover of the production cut deal into 2019. The pact with Russia and other non-OPEC producers is currently scheduled to expire at the end of the year. While the current plan is to extend the agreement and cuts, we think any formal decisions and specifics will be deferred until closer to the December 6 OPEC meeting in Vienna.
The lack of specific numbers will come as a disappointment to oil markets just as markets were not impressed by generic talk of new supply at the Algeria meeting in September.
As we have written in recent notes over the past few weeks, we see the Saudis taking their foot off the “Pump for Trump” gas pedal after the election. We think November cuts in production are already being implemented and will be evident by the time of the December OPEC meeting.
For the Russians, it is more complicated, which is why Russian Energy Minister Alexander Novak is meeting with Russian oil companies on Thursday to try to get buy in.
It’s clear that the two co-chairs of the JMMC, Saudi Arabia and Russia, are coordinating on a path forward. For its part, Saudi Arabia believes that Russia’s participation is critical to managing the oil market and having a real impact on supply and prices.
As for Iran, we believe the JMMC will mostly punt and say there is not enough market data yet on Iran's export situation and sanctions.
Iran said this week that it wants the JMMC and Joint Technical Committee (JTC) disbanded because "some countries side the US on sanctions." As a result, we think a great deal of time at the JMMC meeting (as well as at the December OPEC meeting) will be taken up by this topic as well.