OPEC Hopes Full commitment To Output Quotas Will Help Firm Oil Prices

By Sanya Ademiluyi
At its virtual meeting, Wednesday, August 19, 2020, OPEC + ‘s Joint Ministerial Monitoring Committee ,JMMC the key words were “full and timely conformity.” As the world’s major crude oil producers closed their ranks over efforts to stabilize the global oil market, a new sense of cooperation appears to be holding up among the disparate group of partners led by Saudi Arabia and Russia, two of the world’s biggest oil producers.

Importantly, the Committee said that members have achieved 97 per cent compliance with its output quotas.
Apparently, the 20th meeting of the JMMC was not about to change anything about the stiff output quotas carried over from April’s crucial meeting and enforced at its June 6 meeting.
The current meeting further adopted a “compensation mechanism” which would demand that oil producers which could not immediately comply with oil output cuts do so at later dates—all in a bid to ensure that “excess”oil is taken out of the market and that some members do not feel cheated—a major cause of breaking of the ranks in the past.
According to an OPEC statement on the JMMC meeting :” the Committee emphasized the ongoing positive contributions of the Declaration of Cooperation, DoC in supporting a re-balancing of the global oil market.”
The JMMC said it welcomes “the significant performance in overall conformity for participating OPEC and non –OPEC countries of the DoC which achieved 97 per cent in July, 2020.”
Global oil prices have began to firm up two months ago, since June after several countries eased the lockdowns occasioned by the covid-19 pandemic and demand for oil which had plummeted also showed a slim pick up. In the

same month, the OPEC+ ‘s historic output cut agreed in April had also began to take effect, although its impact would not be immediately felt, until July. Oil prices have rebounded slowly from around $11 per barrel in March to $40 in July.
For Nigeria, the JMMC’s compensation mechanism may pose a big challenge. The country had earlier delayed in cutting back her oil output to its quota of 1.7 million barrels per day and may now be expected to drop her production to 1.3 million barrels per day in order to meet the demand of the compensation mechanism. That may be a big blow to a country in dire need of foreign exchange to meet sundry obligations including debt repayments to foreign creditors.
In the past two months, the naira exchange rate against foreign currencies deteriorated significantly, due to an inadequate supply of foreign exchange. Now, sticking within its Opec+ output quota would mean even less forex from oil sales in coming months.