The Organisation of the Petroleum Exporting Countries (OPEC) has capped its joint output at 32.5mln bpd since 1^st January 2017, representing a 1.2mln bpd reduction from the October 2016 (chosen benchmark) levels (except for Angola for which September 2016 is used). Some non-OPEC producers also joined the pact, the most notable being Russia, bringing the total pledged production cut up to 1.8mln bpd. The current OPEC/non-OPEC production deal is set to expire in March 2018.

The Joint Monitoring Committee comprises of OPEC members Algeria, Kuwait and Venezuela, and non-OPEC members Russia and Oman.

The producers will be discussing scenarios to be considered at future meetings and monitoring compliance.

The key matters, extension and deepening: -

The majority of the oil ministers that have spoken this week have noted that an extension of the current deal will be the main point of discussion, although the Kuwaiti oil minister has suggested that the cartel won't look at an extension of the output cut deal at the upcoming meeting.

In terms of deeper cuts, the Iraqi oil minister al-Luaibi noted that “some think that cuts should be extended beyond March, by 3 or 4 months, or 6 months, or maybe till the end of 2018. Some, like Ecuador and other countries, even Iraq, think there should be another cut of 1%.”

The Russian energy minister Novak was quick to pour cold water on the deepening rhetoric, suggesting that “it is better to focus now on implementation of OPEC deal as opposed to changing parameters.”

Although it is worth noting that Iraq has been one of the laggards to the agreement, failing to fully comply with its promised cuts for most of 2017. As a result some have suggested that the cooperative tone struck by al-Luaibi carries more weight than if it had come from the likes of Saudi Arabia or Kuwait. It is also worth noting that al-Luaibi has said that he is ready to participate in dialogue with Kurdistan to settle oil related issues between the 2 parties.

Compliance: -

Suggestions are that compliance has improved in recent months, with many countries suggesting that they have implemented deeper cuts than pledged, with an OPEC delegate (speaking on Wednesday) suggesting that the August compliance rate stood at 99% (while secondary sources pointed to 83% compliance in the same month).

Saudi Arabia is currently trying to target oil exports, and has stated that it will reduce its exports by 350,000 bpd in October despite refiners requesting additional supply. Russian Energy Minister Novak is also in favour of such a move and has stated that “OPEC and non-OPEC Countries will discuss oil exports monitoring” this week. The Nigerian energy minister Kachikwu also intimated that he would rather monitor export levels over production when assessing compliance. While the usual “sources” pieces have reiterated the idea, suggesting that the joint committee is set “to recommend informal export monitoring.”

The OPEC headache, Nigeria & Libya: -

Nigeria and Libya present the main worries from within OPEC, and representatives from both nations are expected to attend the upcoming meeting.

Oman has suggested that back in July the committee made “no agreement on Libyan output but the committee recommended an agreement with Nigeria to limit production at 1.8mln bpd.” Earlier this month the Nigerian energy minister Kachikwu stated that the “country is currently pumping 1.63mln bpd,” and he expects that Nigeria will “pump between 1.6 and 1.7mln bpd in 2018.” He went on to highlight that he “would be willing to accept an output cap if we can stably pump 1.8mln bpd for 6 months.” Kachikwu also intimated that he would rather monitor export levels over production when assessing compliance.

Libyan production continues to be volatile owing to security tspaneats around production.

Oil Markets: -

Front-month Brent futures have risen sharply in recent months, much more than forward prices, pushing the Brent curve into a state of backwardation.

Bloomberg have highlighted that oil traders are emptying one of the world’s largest crude storage facilities at Saldanha Bay, South Africa, as the physical market tightens amid booming demand and OPEC production cuts. Bloomberg’s chief energy correspondent Javier Blas has suggested that “crude demand is now seasonally outstripping supply, tightening the physical market for some crude varieties to levels not seen in the last two years and encouraging traders to sell their stored oil.” This will of course encourage those participating in the production cut.

Energy Aspects note that “the shift of the Brent curve toward backwardation is proof that the oil market is re-balancing, physical crude differentials are strong globally.”

On To Vienna (In November): -

Moving forwards focus will fall on the next full OPEC summit, scheduled for 30th November (also) in Vienna.