Some OPEC+ participants could be less vigilant with end of lockdowns
22 June 2020

Some OPEC+ participants could be less vigilant with end of lockdowns

BAKU, Azerbaijan, June 22 By Leman Zeynalova – Trend: Some OPEC+ participants could be less vigilant with end of lockdowns related to COVID-19, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend. “The conformity rate of 87 percent for May, as estimated by the Joint Ministerial Monitoring Committee (JMMC), for the OPEC+ countries (OPEC+: 23 countries, of which 13 OPEC countries. Out of these 23 countries 20 are effectively reducing their oil output since 1 May), is fairly good. A low rate would be dangerous for producers in terms of its price impact. Nobody expected a 100 percent conformity rate at the outset. What is very important for OPEC+ is to be able to announce a high rate, which is the case, and to show that this conformity will improve over time. Brent price for the August contracts is now (22 June) slightly above $42 per barrel as against $18.4/b in April (monthly average). The OPEC+ agreement concluded in April 2020 is working. But there is no room for complacency,” he said. Perrin noted that the strong fall in oil consumption and prices in 2020 constitutes a powerful incentive for producers to implement very strictly their production commitments this year. “There is of course a significant risk that some of them could be less vigilant with the end and/or softening of lockdowns throughout the world, the increase in oil demand since the (very) low point of April 2020 and the rise of oil prices. It is the reason why OPEC+ decided that its JMMC would meet every month until the next Summit of these 23 countries, which will take place on 1 December. This committee will closely monitor month after month the implementation of the April 2020 agreement,” he noted. Perrin went on to add that the compensation mechanism is something which is totally new within OPEC/OPEC+. “In the past, when some countries did not respect their commitments, there were some discussions behind closed doors and that was all. For the first time OPEC+ is asking them to catch up over a three month period (July to September) if they were not able or willing to reach full conformity in May-June. Of course OPEC+ cannot impose anything on sovereign states but this mechanism, and what is said publicly about it, is a way to increase the pressures on those which have not totally fulfilled their commitments,” said the expert. He noted that also for the first time some countries were named: the JMMC publicly thanked Iraq and Kazakhstan for having submitted their compensation schedules, which means that these two countries are not totally compliant now. “This is also new in OPEC/OPEC+ practices. The JMMC also said that there are some other countries which are not 100 percent compliant without naming them and without disclosing the number of states which are in this situation. These countries had until today (22 June) to present their compensation schedules. The system is obviously not perfect (no system is perfect) but it is a significant progress for OPEC/OPEC+ in the monitoring of their agreements,” he added. Perrin noted that on Friday 19 June the OPEC Basket of oil prices (the average value of 13 different crudes produced by the OPEC member states) was $39.45/b. “It is of course much lower than at the beginning of 2020 before the Covid 19 pandemic but much higher than in April. OPEC+ countries are on the right path to recovery but there are a lot of uncertainties ahead and they must remain very cautious. 20 OPEC+ countries are reducing their oil output. Four of them, including Saudi Arabia, decided to go further with a supplementary cut of 1.2 million b/d (of which 1 million b/d for Saudi Arabia) in June. At its latest meeting (6 June) OPEC+ decided to extend until end July the validity of its production cuts of 9.7 million b/d (about 10 percent of world oil production in 2019). Some producers which are not part of OPEC+ are also cutting their output (Brazil, Canada, Norway),” he added. --- Follow the author on Twitter:@Lyaman_Zeyn