The ministerial committee that oversees compliance with Opec+ oil production policy made no recommendations for the group to change course at its virtual meeting today. But crucially, the committee also gave no hints as to whether a gradual unwinding of up to 2.2mn b/d of supply reductions will start in October as planned.
The Joint Ministerial Monitoring Committee (JMMC), which now meets every two months to oversee compliance with crude output pledges and study market dynamics, gave little away about its view of current supply and demand balances or where it sees the market through to the end of the year. The meeting took place against a backdrop of weakening oil prices over the past month, although the twin assassinations of key leaders of the Iran-backed Hezbollah and Hamas militant groups in Lebanon and Tehran, respectively, over the past 48 hours has reversed some of those losses.
Front-month Ice Brent futures are now trading at around $81.50/bl, up from around $78/bl two days ago but still well down on the $86.50/bl at the start of July.
Today's JMMC meeting was the last one scheduled before a sub-group of eight Opec+ countries, led by Saudi Arabia and Russia, must decide whether to go ahead with a plan to start unwinding 2.2mn b/d of extra voluntary supply cuts that they have been implementing since January. The plan — to begin returning the barrels over a 12-month period starting in October — was announced at the last full ministerial Opec+ meeting in June. But it is not a foregone conclusion.
At the June meeting, key Opec+ ministers, including Saudi Arabia's Prince Abdulaziz bin Salman, were at pains to stress that the production increase could be paused or reversed depending on market conditions. It was one of several decisions taken that day relating to three separate production cuts that the group has been carrying out since the start of 2023, amounting to a nominal 5.9mn b/d in total.
If the 2.2mn b/d cut is unwound as planned, the collective output target of the eight countries would increase by 540,000 b/d over October-December this year and by another 1.92mn b/d over the first nine months of next year. That factors in a 300,000 b/d increase that the UAE has secured to its 2025 production allowance, which will be phased in between January and September next year.
Tough decisions
The JMMC reiterated today that "the gradual phase-out of the voluntary reduction of oil production could be paused or reversed, depending on prevailing market conditions". In essence, this is an assurance that the group of eight, dubbed "the great eight" by UAE energy minister Suhail al-Mazrouei, will only return those barrels if there is space in the market to do so.
With lingering question marks on the prospects for Chinese oil demand growth this year, a relatively soft summer driving season in the US and strong supply growth from producers outside Opec+, the eight countries may need to consider delaying production increases.
The JMMC also once again underlined the importance of member countries fully complying with their output pledges, noting last week's submission by Iraq, Kazakhstan and Russia of plans detailing how they intend to compensate for producing above target in the first half of 2024.
The JMMC is due to meet next on 2 October, but a decision on whether to begin unwinding the 2.2mn b/d will likely be communicated early next month.
