OPEC’s Joint Ministerial Monitoring Committee (JMMC) met in Baku over the weekend and today to review oil markets and compliance with the group’s December production cut agreement. The JMMC said compliance was near 90 percent and expects 100 percent compliance with the cuts in the coming months.
Saudi Energy Minsiter Khalid al-Falih in comments to the media in Baku was the most vocal advocate of the “stay the course” approach. The minister said the cuts were still needed due to still rising inventory levels. As we forecasted in our last OPEC note, “we think Saudi Arabia will ‘unfollow’ Trump’s oil tweets and stay the course with its plan to balance the market.”
Last year Saudi Arabia complied with Trump’s requests on oil supplies but it was viewed through the prism of reimposed Iran oil sanctions and a desire to help the President in an election year for mid-term congressional races. But Saudi Arabia is now implementing a “Saudi-first” oil policy, and the market should take seriously OPEC’s pull-back on production to support prices after the declines late last year. Indeed Minister al-Falih said Saudi production in will average about 9.8 million barrels per day (b/d) and exports at 7 million b/d over the next two months.
The most important news of the meeting was that the JMMC recommended that OPEC cancel its special April 17/18 meeting in Vienna. The reason is likely due to the April meeting colliding with the Trump Administration’s decision whether to renew Iran oil waivers from sanctions by the May 4 deadline.
We think Secretary Pompeo, NSC Advisor Bolton and other Iran-hawks in the Administration would like to see the waivers expire in May but Trump’s concern about oil prices likely means US officials have been noncommittal on the subject in talks with OPEC officials as well as the waiver recipients themselves.
In our view, renewals for the existing five Iran oil sanction waivers are already priced into the market. But the Administration has at least another month or so to make this decision and will be closely watching oil prices, especially with production declines in Venezuela from US sanctions.
In addition, the US Department of Energy announced a sale of 6 million barrels from the Strategic Petroleum Reserve (SPR) as part of the scheduled sales mandated by Congress to help pay for the 2015 budget act. The sale bids were due by mid-March and deliveries are planned for April and May – just in time for the US decision on renewals for Iran oil sanctions waivers. But we do not see the SPR sales as any signal on Iran waivers.
One subplot going on in Baku was Russia‘s resistance to commit to extending the cuts through December 2019. The Russians were a reluctant supporter of the December cut agreement, and we believe requested the special April meeting to reassess whether the cuts were needed. Ironically, OPEC and the Russians don’t really see the need for the April meeting now as they wait out the US decision on Iran waivers. The oil cut extension decision will be the main topic at the regular-scheduled June OPEC meeting. The JMMC‘s next meeting will be in Saudi Arabia in May (likely after US announcement on Iran waivers) and could provide some insight to the June decision.
