OPEC+ recognizes unfavorable market developments

The Organization of Petroleum Exporting Countries (OPEC) and non-OPEC allies (OPEC+), met Sept.17 to review production policy amid a bleak outlook for energy demand due to a continued upsurge in COVID-19 cases.

The alliance showed that it recognizes the unfavorable market developments, acknowledging the risk of oil demand being reduced as a result of rising infections.

“The JMMC [Joint Ministerial Monitoring Committee] observed that the recovery has not been even across the world and an increase in COVID-19 cases has appeared in some countries. In the current environment, the JMMC emphasized the importance of being pro-active and pre-emptive and recommended that participating countries should be willing to take further necessary measures when needed,” a statement from OPEC read.

OPEC+ did not announce additional output cuts at the meeting, however, Saudi Arabia introduced the possibility to hold an extraordinary meeting in October if the market downturn continues. Moreover, the group appears to extend the compensation deadline for OPEC+ laggards, such as Iraq, Nigeria, and lately, the UAE.

“It was clear that these countries will not be able to comply fully by the end of September and OPEC+ shows that the compensation will not be forgotten. But this is also a compromise that Saudi Arabia is willing to strike in order to ensure that market stability is preserved, benefiting all producers in the alliance, as a break-up would be devastating for countries with little ability to boost production as much as the Saudis,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy.

“Nevertheless, it was clear that the alliance is clearly upset at the sub-compliers and showed that it is not willing to tolerate their lack of action for much longer. From a market confidence perspective, the relationship between the group’s producers is still on but seems fragile, and so do prices.”

“Yet, commitment to address both sub-compliance and the Covid-19’s second wave brought back some of the lost confidence to the market. OPEC+ acted like a big brother today, lashing out at the naughty ones, and saying ‘Count on me, I’m here if it will really be needed’ to the oil family.”