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The short and optimistic meeting of the OPEC + monitoring committee is a promising sign
Wednesday’s meeting of the Joint Ministerial Monitoring Committee (JMMC) of OPEC +, an alliance of OPEC members and 10 other friendly oil-producing nations, was unusually short and unusually sweet.
The upbeat sentiment reflected optimism about the launch of COVID-19 vaccines in developed countries and the fact that additional vaccines, such as Russia’s CureVac and Sputnik V, are being received or being considered for approval. The JMMC expressed optimism that the increasing availability of vaccines bodes well for economic development in the second half of 2021.
This vision went hand in hand with the assessment that the world economy would grow more than expected in 2021, expressed by OPEC Secretary General Mohammed Barkindo during a technical meeting on Tuesday.
In the immediate aftermath of Wednesday’s meeting, oil prices supported sentiment, reaching levels above $ 58 a barrel for Brent and above $ 55 a barrel for WTI. This is approaching highs not seen in a year.
Compliance was good, at 101 percent, including compensatory cuts for the previous overproduction of certain countries. The JMMC particularly praised Nigeria for its efforts to compensate. In that context, it was interesting to note that Nigeria’s energy minister, Timipre Sylva, was appointed a “special envoy” to coordinate compliance by the Congo, Equatorial Guinea, Gabon and South Sudan. Iraq and Kazakhstan also issued a statement affirming their commitment to offset past overproduction.
So far so good. OPEC + has done a good job helping to rebalance the oil markets. Inventories in the countries of the Organization for Economic Cooperation and Development, a key metric by which OPEC measures the state of the market, have been drawn up for the fifth consecutive month.
In its January report, the Paris-based International Energy Agency noted that global oil stocks fell by an average of 2.58 million barrels per day (bpd) during the fourth quarter. In fact, earlier on Wednesday, the US Energy Information Administration reported a draw of 9.9 million barrels for the week ending January 29, knocking down US crude inventories. 5 percent above the five-year average.
However, in the long term, the JMMC raised concerns about the unpredictability of the economic recovery as long as containment of COVID-19 remains uncertain.
This brings us to the psychological currents behind the bullish market sentiment. Last month things seemed more uncertain as country after country increased or blocked COVID restrictions. By mid-January, the conventional wisdom that east Suez was out of the woods when it came to the pandemic was challenged when Japan proclaimed a state of emergency in the Tokyo area and China issued regional closures.
In the immediate aftermath of Wednesday’s meeting, oil prices supported sentiment, reaching levels above $ 58 a barrel for Brent and above $ 55 a barrel for WTI. This is approaching highs not seen in a year.
Cornelia meyer
Oil markets looked fragile then and had it not been for Saudi Arabia’s generous, one-sided, one-million-bpd cut for February and March, we would have seen more pessimistic market sentiment, including price action. chord. It was also that cut that kept markets stable, as OPEC + allowed Russia and Kazakhstan to increase production by a collective 75,000 bpd for February and March, while the remaining 20 countries, plus Saudi Arabia, stood firm on their December cuts.
The 23 member countries will decide a trajectory for April during an OPEC + plenary ministerial meeting on March 4. The smoothness of this meeting will largely depend on the success of vaccination efforts in the major economies. It may involve more talks, because the prescribed path of reducing cuts by another 500,000 bpd will be up for debate again.
While things are looking much better than they have in a long time, we must not forget that it is only as a result of decisive action and historic production cuts agreed by OPEC + that oil markets recovered from stagnation in Last April when the WTI briefly entered negative territory.
We can also be sure that the markets would have been a lot more nervous if it weren’t for Saudi Arabia’s unilateral cut in February and March.
• Cornelia Meyer is a doctoral-level economist with 30 years of experience in investment banking and industry. She is president and CEO of business consulting firm Meyer Resources.
Twitter: @MeyerResources
Disclaimer: The opinions expressed by the writers in this section are their own and do not necessarily reflect the point of view of Arab News
