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Oil Market This Week: OPEC+ expects additional 842,000 b/day cut from Nigeria, Iraq and Kazakhstan as they agree easing of cuts

Mohammad Sanusi Barkindo, OPEC Secretary General. Photo: Africa Oil & Power Conference

SAT, JULY 18 2020-theG&BJournal– The OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting held mid week via videoconference.

Three significant development noticed was first, the cohesion of the OPEC+ when they agreed to ease production cuts from 9.7 mb/d to 7.7 mb/d in August; second was the overall conformity level for participating OPEC and non-OPEC Countries which was reported at 107 per cent in June 2020, by OPEC Joint Technical Committee, and three, the pledges by overproducing countries to achieve full conformity, a move which the markets generally welcomed.

Full conformity if achieved, will significantly keep some supply off the market for a while. Nigeria, Iraq and Kazakhstan are expected to cut as much 842,000 b/day.

In June, the group extended the first phase of production adjustments until 31 July 2020 and 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.

Underperforming participating countries have submitted their plan for implementation of the required compensation to the OPEC Secretariat, in addition to their already agreed production adjustment for those months.

Mohammad Sanusi Barkindo, OPEC Secretary General is hoping that participating countries will ‘’fully execute the plans in place for the coming months, and reinforce the commitment of OPEC+ to a balanced and stable market.’’

Oil demand bounced back from the 20 mb/d lows in April but Barkindo says it will not reach pre-crisis levels of 100 mb/d soon. ‘’ We need to be fully focused on bringing down the inventory builds we have seen. This is vital to the rebalancing process, and vital to helping return sustainable stability to the market, he adds.

This is against the backdrop of OECD commercial oil stocks which surged further in May by 29 mb. For March, April and May combined, the overall build was around 270 mb.

‘’We need to be fully focused on bringing down the inventory builds we have seen,’’ Barkindo said at the JMMC meeting.

Prince Abdul Aziz Bin Salman, Saudi Arabia’s Minister of Energy and Chairman of the JMMC hopes also that ‘’the extra supply, resulting from the scheduled easing of the production cut, will be consumed as demand continues on its recovery path.’’

The downside risk still largely revolves around the potential hit to demand from the coronavirus and renewed lockdowns.

Oil prices ended the week at around $40.59 for WTI, $43.14 for Brent $43.17 for Bonny Light. OPEC bask price closed at $43.80

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