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24 Jul 2017

JMMC expresses confidence that the oil market is steadily progressing towards rebalancing

The Joint OPEC-Non-OPEC Ministerial Monitoring Committee (JMMC) met in St. Petersburg for its fourth meeting on 24 July 2017 to review the June 2017 report as well as the first six months of the Declaration of Cooperation, as submitted by the Joint OPEC-Non-OPEC Technical Committee (JTC).  This meeting was graciously hosted by the Russian Federation, and the Committee expressed its deep appreciation to HE Alexander Novak, Minister of Energy, for the warm hospitality and excellent arrangements extended to all delegations.

The Committee reviewed the JTC report and noted that the oil market is making steady and significant progress towards rebalancing. This assertion is based on the Report of the JTC for the month of June 2017, which reviewed market developments and the results of the first six months of progress made according to OPEC’s 171st Ministerial Conference Decision and the respective voluntary adjustments in line with the Declaration of Cooperation.

The continued strengthening of the global recovery is underway, with stability in the oil market remaining a key determinant.  The market volatility has been lower in recent weeks and investment flows have visibly started to improve in the industry.

According to the JTC report, there are several positive indicators going forward.  Oil demand is expected to increase significantly in the 2H17 compared to 1H17, with the growth reaching a level of 2 mb/d, which should sustain the inventory draws.  Furthermore, the participating OPEC and Non-OPEC producing countries achieved a conformity level of 98% in June 2017.  In addition, same level of high conformity was observed for the first six months of January to June 2017.  Between January and June 2017, the participating producing countries adjusted their production downwards by an estimated volume of 351 mb.  Also, the overhang of OECD commercial oil stocks over the 5-year average level has fallen by 90 mb for the period from January to June 2017 and now stand at 250 mb. The JMMC noted that despite the high level of conformity at the aggregate level, there is still room for improvement by some participating producing countries, and demanded that all participating producing countries must promptly reach full conformity. Consequently, the JMMC had serious discussions with those countries and will continue to engage with all participating countries individually, in particular those that are yet to achieve 100% conformity for the remaining period of the Declaration of Cooperation.

Given the importance of other monitoring metrics in the oil market, and their implications for the market, the JTC should expand monitoring and reporting to include such metrics.

The JMMC further noted that existing oil market trends are resulting in moderation of future supply growth with the number of new FIDs significantly below historic averages.  Shale oil projects which have been the source of sizable share of oil supply growth in past three years are going through a period of slowing well productivity, accelerating cost inflation, deceleration of rig count growth and constrained capital market access.

The JMMC, having reviewed the report of the JTC, including the presentations made by the representatives of Libya and Nigeria on their production recovery plans, prospects, and challenges, acknowledges the upside limitations of both countries beyond their current production levels. Once their production levels stabilize, participating producing countries should further cooperate in a manner that contributes to the stabilization of the market. The JMMC will continue to monitor and recommend further actions including the holding of an extraordinary conference of the 24 producing countries if needed.

The JMMC further welcomed the flexibility of Nigeria in this regard, which despite its commitment to recover its pre-crisis production level, voluntarily agreed to implement similar OPEC production adjustments as soon as its recovery reaches a sustainable production volume of 1.8 mb/d.

The JMMC also recommended keeping the extension of the Declaration of Cooperation beyond 1Q18 as an option should further action be required for the stabilization of the market.

The 5th Meeting of the JMMC is scheduled to take place in September 2017, or earlier if deem necessary.