Opec, non-Opec confirm nine month roll over: Update 2
Adds warning about compliance.
Vienna, 25 May (Argus) — Opec and a group of non-Opec producers today agreed to extend the cuts agreement that they implemented in January for another nine months with the same cut levels for each country.
Egypt and Turkmenistan did not join the cut programme but will become observer members of the grouping, meaning the number of countries participating remains 24. But as Equatorial Guinea today joined Opec, there are now 14 Opec members and 10 non-Opec producers in the agreement although Nigeria and Libya have been exempt from cuts because of their internal security situations and Iran has been permitted to increase output by 90,000 b/d as it recovers from sanctions.
Saudi Arabian oil minister and current Opec president Khalid al-Falih said ministers had consider options to extend the cuts for six, nine or 12 months and had looked at deepening cuts. But "nine months is the optimum", he said. Opec expects global inventories to return to five year averages by the end of 2017 but cuts will continue for a further three months to avoid them rebuilding early in 2018 on the back of a return of the volumes that have been cut.
He lauded the fact that "24 countries came together to agree for nine months more."
Al-Falih said Opec and non-Opec compliance that reached 102pc in April, is set to be even higher in May. But later he said that he was concerned that as stock levels were seen to fall towards five year average levels, compliance with cuts might begin to erode. He cautioned, "We need to stay the course for the full nine months and ... we can reap the benefits."
At the end of the nine months, "we will do what we need to do", al-Falih said.
The overall cut agreed late last year and now rolled over amounts to a net 1.72mn b/d of production.
Asked whether Nigeria and Libya would be asked to cap their production if they recovered substantially from current levels, al-Falih said it would not be appropriate to ask them to do this "any time soon". He said "there is plenty of room [for their production] to grow" and that other producers "will take the slack". He said the output of the two countries is "well below established levels that the organisation has recognised before, last time we had quotas."
When Opec ministers discussed cuts in Algiers last year, they agreed a ceiling range of 32mn-32.5mn b/d. The 500,000 b/d range allowed for a "float" of 500,000 b/d for additional Nigerian and Libyan production, he said, adding that "the net effect of Nigeria and Libya has not approached the float".
For the non-Opec grouping, Russian oil minister Alexander Novak said a nine month extension is "optimal" and would prevent stocks building up again.
The Joint Ministerial Monitoring Committee (JMMC) will continue to monitor compliance. It will also monitor market developments to see if adjustments to the cuts regime are needed before the end of the nine month period. The institutionalisation of Opec and non-Opec cooperation beyond the period of cuts will be studied.
The next JMMC meeting will be in July in Moscow. The next full ministerial meeting will be on 30 November.
Two statements were issued after the meeting, one by Opec and one by the Opec and non-Opec grouping.