Opec+ JMMC meeting to consider familiar concerns

Four months into its historic two-year output restraint deal, the Opec+ coalition will today consider a depressed market outlook just weeks after it eased its production cuts.

The Joint Ministerial Monitoring Committee (JMMC), which examines the group's compliance, will meet virtually at 16:00 Vienna time (14:00 GMT) today. Two days ago the Joint Technical Committee (JTC), which studies market conditions, met to consider another prospective downturn in oil demand, just as Opec+ eased its collective cuts from 9.6mn-9.7mn b/d in May-July to 7.7mn b/d through to the end of the year. All production reductions are from a largely October 2018 baseline.

In an internal report seen by Argus, the JTC this week highlighted "the fragility of the market and large uncertainties, particularly associated with oil demand". It also considered an "alternative scenario, where the pandemic conditions would deteriorate, with substantial downside risks on demand, and consequently an adverse impact on the global oil balance".

This largely chimes with Opec's most recent Monthly Oil Market Report (MOMR), in which it highlighted the risks of "a potential second wave of Covid-19 infections globally". The Paris-based IEA also last week flagged a "stalling of mobility as the number of Covid-19 cases remains high, and weakness in the aviation sector", as it lowered its demand projections for the first time in several months. The IEA now forecasts that global oil demand will fall by 8.1mn b/d this year to 91.9mn b/d, 140,000 b/d below its outlook in the prior month.

The JTC also took a first look at July compliance with the restraint deal, pegging it at 95pc for the Opec+ coalition as a whole. Three Opec+ delegates told Argus that conformity by participating Opec members was 95pc, and that compliance by non-Opec partners was 96pc. Argus estimated overall compliance at 98pc last month — 96pc for Opec and 101pc for non-Opec.

The JTC noted that the group's overall July compliance would rise to 97pc if it included non-Opec member Mexico, which no longer formally partakes in the cuts. The Opec+ group agreed in June to Mexico's request that it be excluded from the deal beyond that month. This lowered the group's overall output cut to 9.6mn b/d in July from 9.7mn b/d in May and June. Factoring Mexico back into compliance calculations would raise questions over the country's future commitments to output cuts, which it has yet to articulate.

A Saudi-led crackdown on compliance saw the JTC urging "vigilance and close monitoring" of conformity among the deal's historical under-performers, such as Nigeria, Iraq and Kazakhstan. Countries that over-produce are now expected to make up for exceeding their quotas with additional output reductions in the short term. Countries that failed to meet their May-July pledges will today be requested to submit a revised schedule for their compensation plans. When accounting for these additional cuts pledged by the likes of Iraq, Nigeria and others, the JTC said overall compliance by the Opec+ group dropped to 94pc in July.

Iraq and Nigeria have repeatedly stressed their intention to deliver fully on their Opec+ commitments, but Argus found that both continued to struggle with their respective targets in July, each producing around 150,000 b/d above their original quotas.

Saudi Arabia has held a tight rein on efforts to enforce compliance discipline. Saudi King Salman bin Abdulaziz had a telephone call with Nigerian president Muhammadu Buhari ahead of today's JMMC meeting, in which both "stressed the importance of compliance by all participants" to the agreement and to the compensation mechanism.

The JTC is next scheduled to meet on 16 September.

By Nader Itayim and Ruxandra Iordache