The Organisation of Petroleum Exporting Countries (OPEC) and its allied oil producers, known as OPEC+, yesterday insisted that defaulting countries, including Nigeria, must adhere to total compliance with the oil production output cuts agreement in April.
This is coming as the Nigerian National Petroleum Corporation (NNPC) yesterday kicked against a swift relocation of tank farms from their current locations along Ijegun, Kirikiri areas in Lagos and other parts of the country, saying that it will cause a dislocation in the supply and distribution chain of petroleum products across the country.
The corporation said the country should achieve the full rehabilitation of the refineries and the completion of the Dangote Refinery to enable the country exit fuel importation before their relocation.
OPEC also expressed optimism that market conditions are gradually improving, but noted that all participating countries must renew their commitment to ensuring stability in the international oil market.
However, contrary to earlier speculations that the cartel will make pronouncements on the next phase of easing of output cuts to about 7.7 million barrels per day, the OPEC failed to make that announcement, but scheduled the next meeting for August.
According to the original agreement from April, OPEC+ was to cut 9.7 million bpd in combined production for two months—May and June—and then ease these to 7.7 million bpd, to stay in effect until the end of the year.
Then, from January 2021, the production cuts would be further eased to 5.8 million bpd, to remain in effect until end-April 2022.
But at its 20th Meeting of the Joint Ministerial Monitoring Committee (JMMC), which took place via video conference yesterday, under the chairmanship of Prince Abdul Aziz Bin Salman, assisted by his Russian counterpart, the committee said it reviewed the monthly report prepared by its Joint Technical Committee (JTC).
A statement after the meeting noted that the committee also considered market prospects for the second half of 2020 and reiterated the importance of the ‘Declaration of Cooperation’ (DoC) in supporting oil market stability.
“The outcomes of the June meetings extended the first phase of the production adjustments until 31 July 2020; provided a compensation mechanism in respect of the months July, August and September for participating countries that were not able to achieve full conformity in May and June.
“The committee reviewed and reaffirmed the commitment of all participating countries to achieve full conformity and make up for any shortfall under compensation plans presented to the committee.
“It stressed that achieving 100 per cent conformity from all participating countries is not only fair but vital for the ongoing rebalancing efforts and to help deliver long term oil market stability,” the cartel said.
After a review of the crude oil production data for the month of June 2020, OPEC said it welcomed the significant performance in the overall conformity level for participating countries at 107 per cent in June 2020, an achievement that found wide recognition in the market.
It reiterated its appreciation of dditional voluntary contributions made by Saudi Arabia, the United Arab Emirates and Kuwait in June.
It noted that removing the credit for over-conformity results in a conformity level of 95 per cent in June, the highest since the inception of the DoC in January 2017, and mandated its secretariat to closely monitor and report to the JMMC the implementation of the required compensation by the underperforming participating countries.
“It also requested underperforming participating countries to submit their plan for implementation of the required compensation for the month June 2020 to the OPEC Secretariat by the end of July 2020,” the statement added.
OPEC said it welcomed the participation of Angola, Gabon, South Sudan and Congo, and noted that they had reiterated their commitment to the DoC production adjustments and compensation plans.
“The committee observed that there were encouraging signs of improvement as economies around the world open up. While there could be localised or partial lockdowns re-imposed in some places, the recovery signs are clear, both in physical and futures markets.
“Moving to the next phase of the agreement, the extra supply resulting from the scheduled easing of the production adjustment will be consumed as demand recovers,” the organisation stated.
It projected that there will be an increase in demand for utilities, as well as changes in travel patterns, boosting domestic demand for gasoline and diesel, explaining that as a result, the impact on participating countries’ exports will be limited.
“In addition, the compensation schedule that has been agreed will mean that the effective level of adjustments will be deeper,” it said.
The collective OPEC+ cut in August and September would be some 8.54 million bpd in the next two months, as Iraq, Nigeria, Angola, Russia, and Kazakhstan are expected to cut output to compensate for the previous lack of compliance, while Saudi Arabia is also expected to keep its August oil exports at the same level as in July.
