Opec+ JMMC affirms commitment to redundant deal

The Opec+ Joint Ministerial Monitoring Committee (JMMC) met today and "reaffirmed their commitment" to the group's existing output policy, a day after eight members of the alliance announced a 1.16mn b/d "voluntary" cut (see table).

Officially, the JMMC outcome means Opec+ is sticking to its October 2022 decision to make a nominal 2mn b/d cut to its overall output ceiling until the end of 2023. In reality, the 2 April decision to cut output from May until the end of the year makes the existing policy largely redundant.

That many members of the group were already producing well below their quotas was already obscuring the October agreement. But with all eight Opec+ members taking part in the voluntary cut producing close to their quotas, the announced reductions will probably take at least 1mn b/d off the market starting from May — equal to around 1pc of world daily oil demand.

"The meeting noted that this is a precautionary measure aimed at supporting the stability of the oil market," Opec+ said in a statement following the JMMC meeting. This is exactly the same wording as used by a Saudi Arabian energy ministry official, as cited on 2 April by state news agency SPA.

Today's statement following the meeting of the JMMC — which included key Opec+ ministers — confirms the voluntary cuts will be set against existing quotas. In contrast, Russia's decision to extend its own "voluntary" 500,000 b/d cut — a response to western-led sanctions on its oil exports — until the end of the year is based on its February production level, as assessed by secondary sources.

The surprise decision by key Opec+ members to cut their output from May has added further weight to suggestions the coalition is firmly set on defending an oil price floor above $80/bl. Global crude prices had been recovering after jitters in the banking sector sent Brent futures down to a 15-month intraday low of around $70/bl in mid-March. Furthermore, key supply and demand indicators show a tightening market in the second half of the year, with Opec itself forecasting global oil demand growth of 1.75mn b/d in the July-December period. Front-month Ice Brent surged by over 5pc in response to the cuts in early trading today, hitting $86/bl at one point.

Opec+ consistently denies that it has a specific oil price target and insists that its production policy is governed only by oil market fundamentals.

Following the decision, several bank analysts have raised their 2023 oil price forecasts, with $100/bl now seen as increasingly likely during the second half of the year.

The voluntary nature of the announced cuts means any decision to ramp up output later in the year could be easier to implement.

By Aydin Calik