By Udeme Akpan
Barely, a few hours after the Joint Ministerial Monitoring Committee (JMMC) of the Organisation of Petroleum Exporting Countries (OPEC) and its non-OPEC allies, popularly known as OPEC+, had put conformity to their output cut in June 2020 at 107 per cent, oil prices have recorded a marginal increase in the global market.
An investigation by Vanguard indicated that the prices of Brent and Nigeria’s Bonny Light rose from $42.50 and $39.60 per barrel to $43.61 and $41.10 per barrel respectively.
However, Nigeria, currently producing 1.4 million barrel per day, mb/d in compliance to OPEC output cut would still not be able to adequately fund its 2020 budget, which was benchmarked on $28 and 1.8 mb/d, especially because of the high cost of production, currently estimated at $30 per barrel.
Nevertheless, in a statement obtained by Vanguard, OPEC stated that the 20th Meeting of the JMMC, which culminated in the compliance report, took place via videoconference on Wednesday, 15 July 2020, under the Chairmanship of HRH Prince Abdul Aziz Bin Salman, Saudi Arabia’s Minister of Energy, and co-Chair HE Alexander Novak, Minister of Energy of the Russian Federation.
According to OPEC, “The Committee reviewed the monthly report prepared by its Joint Technical Committee (JTC) and developments in the global oil market since its last meeting on 18 June 2020. The Committee also considered market prospects for the second half of 2020.”
Importance of Declaration
It stated: “The Committee reiterated the importance of the ‘Declaration of Cooperation’ (DoC) in supporting oil market stability. It recalled the historic decision taken by all Participating Countries in the DoC at the 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting on 12 April 2020 to adjust downwards overall crude oil production, and the unanimous decisions taken at the 179th Meeting of the OPEC Conference and the 11th OPEC and non-OPEC Ministerial Meeting on 6 June 2020.
“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; and endorsed monthly meetings of both the JMMC and the JTC to strengthen monitoring and to help provide a clearer understanding of market fundamentals.”
It stated: “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.
“The Committee 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 Committee reviewed the crude oil production data for the month of June 2020 and welcomed the significant performance in the overall conformity level for participating OPEC and non-OPEC Countries at 107 per cent in June 2020, an achievement that found wide recognition in the market.”
Continuing, it stated: “It reiterated its appreciation of additional voluntary contributions made by Saudi Arabia, the United Arab Emirates and Kuwait in the month of June 2020. The Committee noted that removing the credit for over-conformity results in a conformity level of 95 per cent in June 2020, the highest since the inception of the DoC in January 2017.
“It requested the JTC and the OPEC 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 of June 2020 to the OPEC Secretariat by the end of July 2020.
“The Committee 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.”
Similarly, it stated: “The Committee observed that there were encouraging signs of improvement as economies around the world open up. While there could be localized or partial lockdowns re-imposed in some places, the recovery signs are clear, both in physical and futures markets.
“It noted that moving to the next phase of the agreement, the extra supply resulting from the scheduled easing of the production adjustment would be consumed as demand recovers.”
It further stated: “The Committee also noted that seasonality is more pronounced this year, due to the pandemic. For many DoC participants, there will be an increase in demand for utilities, as well as changes in travel patterns, boosting domestic demand for gasoline and diesel and as a result, the impact on DoC participating countries’ exports will be limited.”